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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001.
OR
/ / TRANSITION REPORT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-2394
WHX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3768097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 EAST 59TH STREET 10022
NEW YORK, NEW YORK (ZIP CODE)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-355-5200 SECURITIES
REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock, $.01 par value New York Stock Exchange
Series A Convertible Preferred Stock, $.10 par value New York Stock Exchange
Series B Convertible Preferred Stock, $.10 par value New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes / / No /X/
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 Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
Aggregate market value of Common Stock held by non-affiliates of the
Registrant as of March 18, 2002 was $12,072,315, which value, solely for the
purposes of this calculation excludes shares held by Registrant's officers,
directors, and their affiliates. Such exclusion should not be deemed a
determination by Registrant that all such individuals are, in fact, affiliates
of the Registrant. The number of shares of Common Stock issued and outstanding
as of March 18, 2002 was 16,087,428.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive proxy statement to be filed pursuant to Regulation 14A in
connection with the 2002 Annual Meeting of Stockholders Part III.
ITEM 1. BUSINESS
OVERVIEW
WHX CORPORATION
WHX Corporation ("WHX") is a holding company that has been
structured to invest in and/or acquire a diverse group of businesses on a
decentralized basis. WHX's primary businesses currently are: Handy & Harman
("H&H"), a diversified manufacturing company whose strategic business segments
encompass, precious metals plating and fabrication, specialty wire and tubing
and engineered materials; and Unimast Incorporated ("Unimast"), a leading
manufacturer of steel framing and other products for commercial and residential
construction. WHX's other business consists of Wheeling-Pittsburgh Corporation
("WPC") and its subsidiaries including Wheeling-Pittsburgh Steel Corporation
("WPSC" and together with WPC and its other subsidiaries, the "WPC Group"), a
vertically integrated manufacturer of value-added and flat rolled steel
products. WHX, together with all of its subsidiaries shall be referred to as the
"Company," and WHX with its subsidiaries other than the WPC Group shall be
referred to as the "WHX Group."
On November 16, 2000 ("Petition Date"), the WPC Group filed
petitions for relief ("Bankruptcy Filing") under Chapter 11 of the United States
Bankruptcy Code ("Bankruptcy Code") in the United States Bankruptcy Court for
the Northern District of Ohio ("Bankruptcy Court"). The WPC Group commenced the
Chapter 11 cases in order to restructure their outstanding debts and to improve
their access to the additional funding that the WPC Group needs for its
continued operations. The WPC Group is in possession of its properties and
assets and continues to manage its businesses with its existing directors and
officers as debtors-in-possession subject to the supervision of the Bankruptcy
Court. WPSC and the other members of the WPC Group are authorized to operate
their businesses, but may not engage in transactions outside of the normal
course of business without approval, after notice and hearing, of the Bankruptcy
Court. The Bankruptcy Court has granted the WPC Group's motion to approve a new
$290 million debtor-in-possession credit agreement ("DIP Credit Agreement")
provided by Citibank, N.A., as initial issuing bank, Citicorp U.S.A., Inc., as
administrative agent, and certain lenders ("DIP Lenders"). Pursuant to the DIP
Credit Agreement, Citibank, N.A. has made term loan advances to the WPC Group up
to a maximum aggregate principal amount of $35 million. In addition the DIP
Lenders have agreed, subject to certain conditions, to provide the WPC Group
with revolving loans, swing loans and letter of credit accommodations in an
aggregate amount of up to $255 million. The term loans and revolving loans are
secured by first priority liens on the WPC Group's assets, subject to valid
liens existing on November 17, 2000, and have been granted superpriority
administrative status, subject to certain carve-outs for fees payable to the
United States Trustee and professional fees. The terms of the DIP Credit
Agreement include cross default and other customary provisions. Effective as of
June 1, 2001, WHX purchased a participation interest comprising an undivided
interest in the Term Loan in the amount of $30 million, plus interest accrued
but not paid on such amount of the Term Loan through June 1, 2001. For
additional information concerning these developments, see Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Notes 2, 10 and 11 to the Consolidated Financial Statements.
As a result of the Bankruptcy Filing the Company has, as of
November 16, 2000, deconsolidated the balance sheet of its wholly owned
subsidiary WPC. In order to simplify this business section, separations will be
made between the WPC business and the remaining WHX businesses.
THE WHX GROUP
HANDY & HARMAN SEGMENTS
WHX acquired H&H in April 1998. H&H's business segments are the (a)
manufacturing and selling of non-precious metal wire, cable and tubing products,
of stainless steel, carbon 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 engineered materials
supplied to the 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, refrigeration, utility, telecommunications,
medical and energy related industries.
Historically, until commencing a diversification program in 1966,
H&H was engaged primarily in the manufacture of silver and gold alloys in mill
forms and the refining of precious metals from jewelry and industrial scrap.
H&H's markets were largely among silversmiths and manufacturing jewelers, users
of silver brazing alloys, and manufacturers who required silver and gold
primarily for the properties of those metals. H&H publishes a daily New York
price for its purchases of silver and gold and
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also publishes a daily price for its fabricated silver and gold. The silver
price, published by H&H, is recognized, relied on and used by others
throughout the world. The diversification program has added lines of precious
metals products and various specialty manufacturing operations, including
stainless steel and specialty metal alloy products, for industrial users in a
wide range of applications described above.
NIMAST SEGMENT
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. On June 29, 2001 as part of the
settlement agreement with the WPC Group, WHX acquired certain assets of
Pittsburgh-Canfield Corporation ("PCC") from the WPC Group. PCC manufactures and
sells electrogalvanized products for application in the appliance and
construction markets and operates as part of the Company's Unimast segment.
WHX ENTERTAINMENT
In October 1994, WHX Entertainment, a wholly owned subsidiary of
WHX, purchased a 50% interest in the operations of Wheeling-Downs Racing
Association ("Wheeling-Downs") from Sportsystems Corporation. Wheeling-Downs
operates a greyhound racetrack and video lottery facility located in Wheeling,
West Virginia. In December 2001, WHX Entertainment sold its 50% interest in
Wheeling-Downs Racing Association, Inc.
BUSINESS STRATEGY
WHX's business strategy has been 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.
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 electroplates
electronic connectors 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. In June 2001, WHX acquired certain assets of PCC, a
manufacturer of electrogalvanized products for application in the appliance and
construction markets. PCC operates as part of the Unimast segment.
PRODUCTS AND PRODUCT MIX
HANDY & HARMAN
H&H 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
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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: (1) the value of the precious metal content of the
product and (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.
UNIMAST
Unimast, a leading manufacturer of steel framing and related
accessories for residential and commercial building construction, shipped
approximately 341,000 tons of steel products in 2001 and 315,000 tons in 2000.
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, which historically provided the WPC Group
with an additional outlet for some portion of its non-prime products. Unimast
has facilities in Joliet, Illinois; Warren, Ohio; McDonough, Georgia; Baytown,
Texas; Boonton, New Jersey; New Brighton, Minnesota; Brooksville and Miami,
Florida; Goodyear, Arizona and East Chicago, Indiana. PCC has a manufacturing
facility in Canfield, Ohio.
CUSTOMERS
HANDY & HARMAN
H&H is diversified across both industrial markets and customers. H&H
sells to the electronics, telecommunications, semiconductor, computer,
aerospace, home appliance OEM, automotive, construction, utility, medical,
silversmith, and general manufacturing industries. In 2001, no customer
accounted for more than 5% of H&H's sales.
UNIMAST
Unimast is a leading manufacturer of steel framing and related
accessories for residential and commercial building construction. Through PCC,
this segment also manufactures and sells electrogalvanized products for
application in the appliance and construction markets. Unimast's ten largest
customers accounted for approximately 40% of its net sales in 2001, 37% in 2000
and 38% in 1999. One customer accounted for 15%, 14% and 13% of net sales in
2001, 2000 and 1999, respectively.
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RAW MATERIALS
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. H&H purchases all
of its precious metals at free market prices from customers, primary producers
or bullion dealers. 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 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, are affected by world market
conditions and government policies.
UNIMAST
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 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 374,400 tons for the year ended December 31, 2001.
BACKLOG
Unimast order backlog at December 31, 2001 was approximately 7,000
tons, as compared to 6,000 tons at December 31, 2000.
H&H has no material backlog.
CAPITAL INVESTMENTS
The Company believes that its operating business segments must
continuously strive to improve productivity and product quality, and control
manufacturing costs, in order to remain competitive. Accordingly, the Company's
business segments are committed to making necessary capital investments with the
objective of reducing overall manufacturing costs, improving the quality of
products produced and broadening the array of products offered to the Company's
several markets. H&H and Unimast's capital expenditures for 2001 were
approximately $15.2 million. From 1997 to 2001, capital expenditures aggregated
approximately $87.7 million. H&H capital expenditures included in this total are
$59.3 million for 1998 to 2001. This level of capital expenditure was needed to
expand and maintain productive capacity, improve productivity and upgrade
selected facilities to meet competitive requirements and maintain compliance
with environmental laws and regulations. The Company anticipates funding its
capital expenditures for the WHX Group in 2001 from cash on hand, funds
generated by operations and funds available under the revolving credit
facilities at H&H and Unimast. The Company anticipates that capital expenditures
for the H&H and Unimast segments will approximate depreciation, on average, over
the next few years.
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ENERGY REQUIREMENTS
The WHX Group requires significant amounts of electricity and
natural gas to operate its facilities and is subject to price changes in these
commodities. A shortage of electricity or natural gas, or a government
allocation of supplies resulting in a general reduction in supplies, could
increase costs of production and could cause some curtailment of production.
EMPLOYMENT
Total active employment of the WHX Group at December 31, 2001
aggregated 2,756 employees. At December 31, 2001, the H&H segment had 2,025
employees and the Unimast segment had 729 employees.
Of the 2,756 employees of the WHX Group, 853 were salaried
employees, 761 were covered by collective bargaining agreements and 1,142 were
non-union operating employees.
COMPETITION
HANDY & HARMAN
H&H is one of the leading fabricators of precious metal products and
precision stamping, electroplating and molding. 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,
technology, 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 engineered products
of the type manufactured by H&H. Competition is based on quality, technology,
service, price and new product introduction, each of which is of equal
importance.
UNIMAST
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.
THE WPC GROUP
WPC GROUP
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.
BUSINESS STRATEGY
The WPC Group is engaged in discussions with the official committees
of creditors in the Chapter 11 cases, with the ultimate aim of proposing a
Chapter 11 plan of reorganization.
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PRODUCTS AND PRODUCT MIX
The table below reflects the historical product mix of WPC's
shipments, expressed as a percentage of tons shipped compared to 2001 and
earlier-year levels:
HISTORICAL PRODUCT MIX
YEAR ENDED DECEMBER 31
-------------------------------------------------
PRODUCT CATEGORY: 2001 2000 1999 1998 1997(1)
---- ---- ---- ---- ------
Higher Value-Added Products:
Cold Rolled Products--Trade 9.2% 13.6% 10.6% 11.0% 5.6%
Cold Rolled Products--Wheeling-Nisshin 20.0 13.9 19.4 19.0 7.7
Coated Products 4.4 11.5 16.0 17.5 12.3
Tin Mill Products 10.8 10.0 9.8 7.1 3.3
Fabricated Products 24.6 19.6 15.4 15.6 39.0
------ ------ ----- ----- -----
Higher Value-Added Products as a percentage 69.0% 68.6% 71.2% 70.2% 67.9%
of total shipments
Hot Rolled Products 31.0 30.9 28.8 29.5 20.0
Semi-Finished -- 0.5 -- 0.3 12.1
------ ------ ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ===== ===== =====
Average Net Sales Per Ton $412 $475 $461 $511 $590
====================================================================================================
(1) The allocation among product categories was affected by the strike.
Set forth below is a description of the WPC Group's major customer categories:
WPC
Products produced by WPC are described below. These products are
sold directly to third-party customers, and to Wheeling-Nisshin (as defined
below) and OCC (as defined below) 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. Cold rolled processing
is designed to reduce the thickness and improve the shape, surface
characteristics and formability of the product.
COATED PRODUCTS. WPC manufactures a number of corrosion-resistant,
zinc-coated products including hot-dipped galvanized sheets for resale to trade
accounts. The coated products are manufactured from a steel substrate of cold
rolled or hot rolled pickled coils by applying zinc to the surface of the
material to enhance its corrosion protection. WPC's trade sales of galvanized
products are heavily oriented to unexposed applications, principally in the
appliance, construction, service center and automotive 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, and is utilized extensively in the manufacture
of pails and shelving and sold to OCC for the manufacture of tinplate products.
Tinplate is produced by the electro-deposition of tin to a blackplate substrate
and is utilized principally in the manufacture of food, beverage, general line
and aerosol containers. While the majority of WPC's sales of these products are
concentrated in container markets, WPC also markets products for automotive
applications, such as oil filters and gaskets. WPC produces all of its
tin-coated products through OCC. OCC's $69 million tin coating mill, which
commenced commercial operations in January 1997, has a nominal annual capacity
of 250,000 net tons. WPC has the right to supply up to 230,000 tons of the
substrate requirements of the joint venture through the year 2012, subject to
quality requirements and competitive pricing. WPC is the exclusive distributor
of all of the joint venture's product. However, Nittetsu Shoji America
("Nittetsu"), a U.S. based tin plate importer, has agreed to market
approximately 70% of the product as a distributor for WPC pursuant to an
agreement which was approved by the Bankruptcy Court on March 30, 2001. Prior to
the approval of such agreement, Nittetsu had been a sales representative for
approximately 25% of OCC's product.
HOT-ROLLED PRODUCTS. Hot-rolled coils represent the least processed
of WPC's finished goods. Approximately 69.0% of WPC's 2001 production of
hot-rolled coils was further processed into value-added finished products.
Hot-rolled black or pickled
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(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.
HEELING-NISSHIN
WPC owns a 35.7% equity interest in Wheeling-Nisshin, Inc.
("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 has capacity to produce over 700,000 annual tons
and can 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 provides 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 and
competitive pricing. Shipments of cold-rolled steel by WPC to Wheeling-Nisshin
were approximately 412,000 tons, or 20% of WPC's total tons shipped in 2001 and
approximately 330,000 tons, or 14% in 2000. Pursuant to the terms of the
agreements between WPC and Nisshin, for the 180 day period following the
Petition Date, Nisshin had the right to purchase WPC's interest in
Wheeling-Nisshin for the fair value price to be agreed upon by the parties or as
otherwise determined by a third party if the parties cannot agree. Nisshin did
not exercise such right.
OHIO COATINGS COMPANY
WPC has a 50% equity interest in Ohio Coatings Company ("OCC"),
which is a joint venture between WPC and Dong Yang Tinplate America, Inc., a
leading South Korea-based tin plate producer. Nittetsu Shoji America
("Nittetsu"), a U.S.-based tinplate 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. 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 is the exclusive distributor of all of
OCC's products. However, Nittetsu has agreed to market approximately 70% of the
product as a distributor for the WPC Group pursuant to an agreement, which was
approved by the Bankruptcy Court on March 30, 2001. Prior to the approval of
such agreement, Nittetsu had been a sales representative for approximately 25%
of OCC's product. In 2001, 2000 and 1999, OCC had an operating income of $3.7
million, $3.8 million and $2.1 million, respectively.
CUSTOMERS
WPC markets an extensive mix of products to a wide range of
manufacturers, converters and processors. The WPC Group's 10 largest customers
(including Wheeling-Nisshin) accounted for approximately 43.9% of its net sales
in 2001, 38.7% in
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2000, and 43.7% in 1999. Wheeling-Nisshin accounted for 14.6%, 10.9% and 16.2%
of net sales in 2001, 2000 and 1999, respectively. Geographically, the majority
of the WPC Group's customers are located within a 350-mile radius of the Ohio
Valley. However, the WPC Group 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.
Shipments historically have been concentrated within seven major
market segments: steel service centers, converters/processors, construction,
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 are substantially less than the industry average.
PERCENT OF TOTAL NET TONS SHIPPED
Year Ended December 31,
----------------------------------------------------------------------------------
2001 2000 1999 1998 1997(1)
---- ---- ---- ---- -------
Steel Service Centers 29% 33% 30% 29% 32%
Converters/Processors (2) 27 24 27 32 16
Construction 22 21 19 19 31
Agriculture 4 5 5 6 14
Containers (2) 11 11 11 8 2
Automotive 1 1 1 1 2
Appliances 2 2 3 2 2
Exports 1 - 1 1 -
Other 3 3 3 2 1
---- ---- ---- ---- -------
Total 100% 100% 100% 100% 100%
==== ==== ==== ==== ======
==================================================================================================================
(1) The allocation among customer categories was affected by the strike.
(2) Products shipped to Wheeling-Nisshin and OCC are included primarily in
the Converters/Processors and Containers markets, respectively.
Set forth below is a description of the WPC Group's major customer
categories:
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 1980's 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. 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.
CONSTRUCTION. The shipments to the construction industry are heavily
influenced by fabricated product sales. WPC services the non-residential and
agricultural building and highway industries, principally through shipments of
hot dipped galvanized and painted cold rolled products. WPC has been able to
market its products into broad geographical areas due to its numerous regional
facilities.
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.
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
9
OCC joint venture, the WPC Group phased out its existing tin mill production
facilities. WPC and Nittetsu distribute tin products produced by OCC.
AUTOMOTIVE. Unlike the majority of its competitors, the WPC Group is
not heavily dependent on shipments to the automotive industry. However, the WPC
Group 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, the WPC Group 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 and hot-rolled coils. These products are furnished
directly to appliance manufacturers as well as to blanking, drawing and stamping
companies that supply OEMs. The WPC Group has concentrated on niche product
applications primarily used in washer/dryer, refrigerator/freezer and range
appliances.
RAW MATERIALS
The WPC Group has the right under the Bankruptcy Code, subject to
Bankruptcy Court approval and certain other conditions, to assume or reject any
pre-petition executory contracts and unexpired leases. Parties affected by such
rejections may file pre-petition claims with the Bankruptcy Court in accordance
with bankruptcy procedures. In the following discussion, certain existing
contracts of the WPC Group are described without attempting to predict whether
such contracts ultimately will be assumed or rejected in the Chapter 11 cases.
The WPC Group has a long-term contract to purchase a minimum of 75%
of its iron ore needs through 2009. The iron ore price is based upon prevailing
world market prices. The WPC Group generally consumes approximately 3 million
gross tons of iron ore pellets in its blast furnace annually. The WPC Group will
obtain the balance of its iron ore from spot and medium-term purchase agreements
at prevailing world market prices.
The WPC Group has a long-term supply agreement with a third party to
provide the WPC Group with a substantial portion of the WPC Group's
metallurgical coal requirements at competitive prices. The WPC Group's coking
operations require a substantial amount of metallurgical coal.
The WPC Group currently produces coke in excess of its requirements
and typically consumes generally all of the resultant by-product coke oven gas.
In 2001, the WPC Group consumed approximately 1.4 million tons of coking coal in
the production of blast furnace coke. The WPC Group sells its excess coke and
coke oven by-products to third-party trade customers.
The WPC Group'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. The WPC
Group is presently dependent on external steel scrap for approximately 10.8% 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 the WPC Group's raw material
supply contracts provide for price adjustments in the event of increased
commodity or energy prices.
ACKLOG
The WPC Group's Steel Division order backlog was 245,970 net tons at
December 31, 2001, compared to 160,735 net tons at December 31, 2000. All orders
related to the backlog at December 31, 2001 are expected to be shipped during
the first half of 2002, 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 WPC Group anticipates that it will fund its capital expenditures
in 2002 from cash on hand, funds generated by operations and funds available
under the DIP Credit Agreement. It is anticipated that capital expenditures will
be minimized
10
during the Chapter 11 proceedings until liquidity is sufficient and stabilized.
There can be no assurance that such funds will be sufficient to fund required
capital expenditures. The WPC Group's capital expenditures (including
capitalized interest) for 2001 were approximately $5.0 million, including $0.8
million on environmental projects. From 1997 to 2001 such expenditures
aggregated approximately $242.0 million.
The WHX Group has no obligation to fund any of the WPC Group's
future capital expenditures, and does not anticipate doing so. In the event that
the WPC Group is unable to fund its environmental capital expenditures, claims
may be made against WHX for payment of such costs.
ENERGY REQUIREMENTS
Many of the major facilities at the WPC Group that use natural gas
have been equipped to use alternative fuels. During 2001, coal constituted
approximately 72% of the WPC Group's total energy consumption, natural gas 22%
and electricity 6%. The Company continually monitors its operations regarding
potential equipment conversion and fuel substitution to reduce energy costs.
EMPLOYMENT
At December 31, 2001, the WPC Group had 3,488 employees of which
2,644 were represented by the United Steel Workers of America ("USWA"), 86 by
other unions, 728 were salaried employees and the remainder of 30 were non-union
operating employees. On August 12, 1997, WPSC and USWA entered into a five-year
labor agreement.
In light of the Chapter 11 cases, the USWA has agreed to temporarily
waive certain provisions of the collective bargaining agreement regarding
guaranteed employment and to temporarily postpone certain "gainsharing" payments
that otherwise would be due.
Additionally, on October 22, 2001, the Bankruptcy Court entered an
order which, among other things, approved the terms of the Modified Labor
Agreement ("MLA") by and among WPC, WPSC and the USWA. The Company is not a
party to the MLA. The MLA modifies the current WPSC collective bargaining
agreement to provide for, among other things, immediate reductions in wages and
the cost of providing medical benefits to active and retired employees in
exchange for improvement in wages and pension benefits for hourly employees upon
a confirmed WPSC Chapter 11 Plan of Reorganization. The MLA is part of a
comprehensive support arrangement that also involves concessions from WPSC
salaried employees, WPSC's vendors and other constituencies in the Chapter 11
proceedings.
COMPETITION
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,
mini-mills and processors. Processors compete with WPC in the areas of slitting,
cold rolling and coating. Mini-mills are generally smaller-volume steel
producers that use ferrous scrap metals as their basic raw material. Compared to
integrated producers, mini-mills, which rely on less capital-intensive steel
production methods, have certain advantages. Since mini-mills 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
mini-mill capacity has been constructed and these mini-mills now compete with
integrated producers in product areas that traditionally have not faced
significant competition from mini-mills. In addition, there has been significant
additional flat-rolled mini-mill capacity constructed in recent years. These
mini-mills and processors compete with WPC primarily in the commodity
flat-rolled steel market. In the long term, such mini-mills 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
other large economies such as Russia and China, have also recognized the United
States as a target market. 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, 23% in 1999, 23% in 2000 and 20% in
2001. Imports surged in 1998 due to severe economic conditions in Southeast
Asia,
11
Latin America, Japan and Russia, among others. Average import customs values in
December 2001 continued to be depressed with the average import value of some
key finished steel products below values reported in the depths of the 1998
crisis. 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.
In March 2002, the United States Government announced its decision
to enact tariffs on certain imported steel. These tariffs begin at 30% and range
down to 18% over three years. Certain of these tariffs will be imposed on steel
imports that compete directly with WPC. It is not yet known what impact this
will have on WPC or the United States steel industry.
Total annual steel consumption in the United States has
fluctuated between 88 million and 123 million tons since 1991. A number of steel
substitutes, including plastics, aluminum, composites and glass, have reduced
the growth of domestic steel consumption.
ITEM 2. PROPERTIES
HANDY & HARMAN
H&H has 23 active operating plants in the United States, Canada,
England, Denmark and Singapore (50% owned) with a total area of approximately
1,827,000 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
55,000 square feet) and owns eight non-operating or discontinued locations with
a total area of approximately 468,000 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 and Westfield, 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.
UNIMAST
Unimast has owned facilities located at Joliet, Illinois; Warren,
Ohio; and Boonton, New Jersey; and has leased facilities located at McDonough,
Georgia; Baytown, Texas; New Brighton, Minnesota; Brooksville and Miami,
Florida; Goodyear, Arizona; and East Chicago, Indiana. PCC has an owned facility
in Canfield, Ohio.
WPC GROUP
The WPC Group 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 2.8 million tons, an 80-inch hot strip mill
and pickling and coil finishing facilities. A railroad bridge owned by WPC
connects the Ohio and West Virginia locations, which are separated by the Ohio
River. 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 WPC Group's facilities
for further processing into value-added products.
12
The following table lists the other principal plants of the WPC
Group and the annual capacity of the major products produced at each facility:
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
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 the WPC Group 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.
The WPC Group 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; Bradenton, Florida; Fallon, Nevada; and Rankin, Pennsylvania.
The WPC Group maintains regional sales offices in Atlanta, Chicago,
Detroit, Philadelphia, Pittsburgh and its corporate headquarters in Wheeling,
West Virginia.
ITEM 3. LEGAL PROCEEDINGS
THE WHX GROUP
HANDY & HARMAN
On or about April 3, 2000, a civil action was commenced under Title
3 of the United States Code ss.3729 et seq. (False Claims Act) entitled United
States of America, ex rel. Patricia Keehle v. Handy & Harman, Inc. (sic) and
Strandflex, a Division of Maryland Specialty Wire, Inc. ("Strandflex") (Civil
Action No. 5:99-CV-103). The substantive allegations in the complaint relate to
the alleged improper testing and certification of certain wire rope manufactured
at the Strandflex plant during the period 1992-1999 and sold as MILSPEC wire.
The United States Attorney's office also conducted a criminal investigation
relating to this matter and Strandflex was a target of the criminal
investigation under title 18 of the United States Code ss.287 (Submitting False
Claims) with the focus of the investigation being whether wire rope sold to
government agencies, either directly or indirectly, was misrepresented by
Strandflex as meeting MILSPEC specifications. H&H entered into discussion with
the United States Attorney to seek a negotiated settlement of all criminal and
civil claims. Those discussions resulted in a settlement agreement dated May 24,
2001, pursuant to which all civil and criminal claims were resolved as follows:
Maryland Specialty Wire, Inc., Strandflex Division, made a total
civil payment of $1 million which amount represented civil damages as payment
for remediation and compensation and included $100,000 as restitution pursuant
to the Plea Agreement which related to 35 wire rope sales which took place
between 1994 and 1998;
Maryland Specialty Wire, Inc., Strandflex Division, paid a criminal
fine of $500,000 and $100,000 as restitution pursuant to the Plea Agreement.
There are no known incidents of any Strandflex wire rope failing and
causing personal or property damage in any application.
13
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") commenced on March 31, 1997 through the Company's
wholly-owned subsidiary, SB Acquisition Corp. ("Offer"). The Company previously
disclosed that the SEC intended to institute this proceeding. Specifically, the
Order Instituting Proceedings ("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 ("Exchange Act"), based on the Company's
inclusion of a "record holder condition" in the Offer. No shareholder had
tendered any shares at the time the condition was removed. The Order further
alleges that the Company violated Rules 14d-4(c) and 14d-6(d) under the Exchange
Act upon expiration of the Offer, by allegedly waiving material conditions to
the Offer without prior notice to shareholders and purchasing the approximately
10.6% of DCA's outstanding shares tendered pursuant to the offer. The SEC does
not claim that the Offer was intended to or in fact defrauded any investor.
The Order institutes proceedings to determine whether the SEC should
enter an order requiring the Company (a) to cease and desist from committing or
causing any future violation of the rules alleged to have been violated and (b)
to pay approximately $1.3 million in disgorgement of profits. The Company filed
an answer denying any violations and seeking dismissal of the proceeding. On
October 6, 2000, the initial decision of the Administrative Law Judge who heard
the case dismissed all charges against the Company, with the finding that the
Company had not violated the law. The Division of Enforcement has filed a
petition for the SEC to review the decision and a brief, but only as to the All
Holders Rule Claim. The Commission, however, has authority to review any issues
on its own accord. WHX has filed its opposition brief.
GENERAL LITIGATION
The WHX Group 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. However, it is possible that
the ultimate resolution of such litigation matters and claims could have a
material adverse effect on quarterly or annual operating results when they are
resolved in future periods.
THE WPC GROUP
THE WPC GROUP GENERAL LITIGATION
The WPC Group is a party to various litigation matters including
general liability claims covered by insurance. Claims that are "pre-petition"
claims for Chapter 11 purposes will ultimately be handled in accordance with the
terms of a confirmed Plan of Reorganization in Chapter 11 cases. In the opinion
of management, litigation claims are not expected to have a material adverse
effect on the WPC Group's results of operations or its ability to reorganize.
BANKRUPTCY FILING
On November 16, 2000, the WPC Group filed petitions for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Ohio. The WPC Group commenced the Chapter 11 cases in order
to restructure their outstanding debts and to improve their access to the
additional funding that the WPC Group needs for its continued operations. The
WPC Group is in possession of its properties and assets and continues to manage
its businesses with its existing directors and officers as debtors-in-possession
subject to the supervision of the Bankruptcy Court. WPSC and the other members
of the WPC Group are authorized to operate their businesses, but may not engage
in transactions outside of the normal course of business without approval, after
notice and hearing, of the Bankruptcy Court. In the Bankruptcy Filing, the WPC
Group may, with Bankruptcy Court approval, sell assets and settle liabilities,
including for amounts other than those reflected in WPC's financial statements.
The administrative and reorganization expenses resulting from the Bankruptcy
Filing will unfavorably affect results of the WPC Group. Moreover, future
results may be adversely affected by other claims and factors resulting from the
Bankruptcy Filing. For additional information concerning these developments, see
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations and Notes 2, 10, and 11 to the Consolidated Financial Statements.
14
ENVIRONMENTAL MATTERS
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 $.8
million, $3.4 million and $7.7 million for 2001, 2000, 1999 respectively. WPC
anticipates spending approximately $19.5 million in the aggregate on major
environmental compliance projects through the year 2004, estimated to be spent
as follows: $9.7 million in 2002, $6.1 million in 2003 and $3.7 million in 2004.
Due to the possibility of unanticipated factual or regulatory developments and
the Bankruptcy Filing, the amount and timing of future expenditures may vary
substantially from such estimates.
In addition, the treatment of environmental liabilities in the
pending Chapter 11 cases may differ depending on whether such liabilities are
determined to be "pre-petition" or "post-petition" liabilities of the WPC Group.
It is not possible or appropriate to predict how environmental liabilities
ultimately may be classified in the WPC Group's Chapter 11 cases, and in the
following discussion the WPC Group has not attempted to distinguish between
pre-petition and post-petition liabilities.
WPC has been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act
("Superfund") or similar state statutes at several waste sites. WPC is subject
to joint and several liability imposed by Superfund on potentially responsible
parties. Due to the technical and regulatory complexity of remedial activities
and the difficulties attendant to identifying potentially responsible parties
and allocating or determining liability among them, WPC is unable to reasonably
estimate the ultimate cost of compliance with Superfund 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 million. At four other sites (MIDC Glassport,
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 ("Clean Air Act") directly
affect the operations of many of WPC's facilities, including coke ovens. WPC is
currently operating 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 that will result in an
increase in environmental capital expenditures and costs for environmental
compliance. The forecasted environmental expenditures include amounts that 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
("RFI") to determine the nature and extent of soil and groundwater contamination
and appropriate clean up methods. WPC anticipates spending up to $0.2 million in
year 2002 for sampling at the site. It is also expected that remediation
measures will be necessary. Such measures could commence as early as 2003 with
the expenditure of $1.0 million or more. Until the EPA responds to WPC's
investigation report, the full extent and cost of remediation cannot be
ascertained.
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 WPC has paid the
civil penalties due pursuant to the terms of the consent decree, WPC continues
to accrue stipulated penalties to such consent decree. As of December 2001, WPC
has accrued stipulated penalties of approximately $4.5 million.
15
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 $200,000.
As part of WPC's effort to resolve disputed enforcement issues with
Ohio EPA ("OEPA") and the Ohio Attorney General related to the June 1999
lawsuit, WPC agreed to file a plan for closure of a spent pickle liquor storage
transfer system at WPC's Yorkville, Ohio plant. OEPA made unilateral
modifications to the plan that imposed significant additional requirements on
WPC. WPC timely appealed the plan as modified to the Ohio Environmental Review
Appeals Commission ("ERAC") on July 9, 1999, challenging the additional
requirements imposed by OEPA. Pursuant to ongoing settlement discussions, WPC
subsequently agreed to submit a revised closure plan. OEPA again made unilateral
modifications to the revised plan that imposed significant additional
requirements on WPC. WPC timely appealed the revised plan as modified to the
ERAC on May 25, 2000, challenging OEPA's authority to impose the additional
requirements. WPC withdrew both plans in December 2000, and settlement
negotiations with respect to both appeals are on going.
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, OEPA and WPC entered into a
consent decree settling the civil penalties related to this matter for
approximately $250,000. The consent decree also obligates WPC to pay certain
stipulated penalties for future air violations. As of December 31, 2001, the
total stipulated penalty amount is $134,000. An additional $78,000 is due on
demand by OEPA for a supplemental environment project withdrawal by WPC.
WPC has experienced discharges of oil through NPDES permitted
outfalls at its Mingo Junction, Ohio and Allenport, Pennsylvania plants. WPC
spent approximately $3.0 million in each of 2001 and 2000, respectively, to
investigate and clean up oil spills at its Mingo Junction, Ohio facility. WPC
spent approximately $2 million to install a slip-lined pipe in an existing sewer
at its Mingo Junction, Ohio facility. WPC has not yet received any notices of
violation from the regulatory agencies for such oil spills.
On November 8, 2000, the EPA issued a Unilateral Administrative
Order ("UAO"), under alleged authority of Clean Water Act ss.311, to compel WPC
to abate alleged oil discharges at its Mingo Junction plant, undertake remedial
actions, and reimburse certain expenses of the United States. WPC responded to
the UAO, and the EPA has expressed interest in resolving these issues through a
consent order. No further enforcement actions have been initiated against WPC
for any alleged oil discharges at its Mingo Junction, Ohio plant.
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 the 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 but an agreement in principle has been tentatively approved. If
this agreement is finalized, WPC would be required to upgrade certain of its air
emission control devices and such upgrades are expected to cost approximately $5
million. WPC is continuing to explore settlement with the EPA regarding such air
violations.
On May 12, 2000, the West Virginia Department of Environmental
Protection ("WVDEP") issued a Unilateral Order requiring that WPC remove certain
seal tar deposits from the bed of the Ohio River. WPC timely appealed the
Unilateral Order to the West Virginia Environmental Quality Board on June 13,
2000. WPC and WVDEP subsequently entered into a Consent Order on or about
September 12, 2000, and the appeal was withdrawn. Under the consent Order, WPC
has agreed to undertake certain actions by particular dates, including
monitoring, development of work plans, and removal of certain coal tar deposits
from the bed of the Ohio River. WPC anticipates spending up to $300,000 in year
2002 to undertake actions under the Consent Order.
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.
WPC's non-current accrued environmental liabilities totaled $19.0
million and $17.1 million at December 31, 2001 and December 31, 2000,
respectively. These accruals were initially determined by WPC, based on all
available information. As new information becomes available, including
information provided by third parties, and changing laws and regulation, the
liabilities
16
are reviewed and the accruals adjusted quarterly. WPC Management believes, based
on its best estimate, that WPC has adequately provided for remediation costs
that might be incurred or penalties that might be imposed under present
environmental laws and regulations.
Based upon information currently available, including 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.
As discussed above, various members of the WPC Group have existing
and contingent liabilities relating to environmental matters, including
environmental capital expenditures, costs of remediation and potential fines and
penalties relating to possible violations of national and state environmental
laws. In the event the WPC Group is unable to fund these liabilities, claims may
be made against the WHX Group for payment of such liabilities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The number of shares of Common Stock issued and outstanding as of
March 18, 2002 was 16,087,428. There were approximately 11,449 holders of record
of Common Stock as of March 18, 2002. In 1999, the Company purchased 3.6 million
shares of Common Stock in open market purchases. The repurchased shares have
been retired. There were no purchases of Common Stock made by the Company in
2001 and 2000.
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
---- ---
2001
First Quarter $ 1.71 $ .81
Second Quarter 1.98 1.01
Third Quarter 2.25 1.16
Fourth Quarter 1.79 1.30
2000
First Quarter $ 8.94 $ 6.50
Second Quarter 8.69 5.31
Third Quarter 5.94 1.13
Fourth Quarter 2.56 0.69
Pursuant to the terms of the Supplemental Indenture to the
Company's 10 1/2% Senior Notes, the Company is prohibited from paying dividends
on its Common Stock or Preferred Stock until after October 1, 2002, at the
earliest (see Note 8 to the Consolidated Financial Statements). The Company is
further prohibited from paying dividends on its Common Stock during such time as
the full cumulative dividends on the Preferred Stock have not been paid.
Dividends on the Preferred Stock have not been paid since the
dividend payment of October 1, 2000. The holders of the Preferred Stock are
eligible to elect two directors to the Company's Board of Directors upon the
Company's failure to pay six quarterly dividend payments, whether or not
consecutive. The next regularly scheduled dividend payment date is April 1,
2002. If the dividend is not paid, this date would be the sixth dividend
non-payment. As stated above, the Company
17
is prohibited by the Supplemental Indenture to its 10 1/2% Senior Notes from
making such dividend payment. Accordingly, following April 1, 2002, upon the
non-payment of the Preferred Stock dividend, the holders of the Preferred Stock
will have the right to elect two directors to the Company's Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR STATISTICAL WHX CORPORATION
(THOUSANDS OF DOLLARS)
2001 2000(A) 1999 1998(B) 1997(C)
------------ ------------- ------------- ------------ -----------
Profit and Loss:
Net sales $ 620,522 $ 1,745,459 $ 1,764,699 $ 1,690,846 $ 662,307
Cost of products sold (excluding
depreciation and amortization) 505,657 1,510,325 1,487,441 1,425,920 740,933
Depreciation and amortization 28,906 98,777 104,856 96,870 49,445
Selling, administrative and general expense 79,382 142,373 137,615 116,840 68,190
Special charge - - - - 92,701
------------ ------------- ------------- ------------ -----------
Operating income (loss) 6,577 (6,016) 34,787 51,216 (288,962)
Interest expense on debt 48,905 86,222 87,851 78,096 29,047
Gain on sale of interest in Wheeling-Downs 88,517 - - - -
Other income/(expense) 10,604 (15,207) 30,800 89,696 50,668
------------ ------------- ------------- ------------ -----------
Income (loss) before taxes 56,793 (107,445) (22,264) 62,816 (267,341)
Tax provision (benefit) (31,971) 73,600 (6,430) 23,386 (93,569)
------------ ------------- ------------- ------------ -----------
Income (loss) before extraordinary items 88,764 (181,045) (15,834) 39,430 (173,772)
Extraordinary items-net of tax 12,357 - 896 2,241 (25,990)
------------ ------------- ------------- ------------ -----------
Net income (loss) 101,121 (181,045) (14,938) 41,671 (199,762)
Preferred stock dividends 19,329 20,607 20,608 20,608 20,657
------------ ------------- ------------- ------------ -----------
Net income (loss) available to
common stock $ 81,792 $ (201,652) $ (35,546) $ 21,063 $ (220,419)
============ ============= ============= ============ ===========
BASIC INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary items $ 4.63 $ (14.10) $ (2.30) $ 1.04 $ (8.83)
Extraordinary items-net of tax 0.82 - 0.06 0.12 (1.18)
------------ ------------- ------------- ------------ -----------
Net income (loss) per share $ 5.45 $ (14.10) $ (2.24) $ 1.16 $ (10.01)
============ ============= ============= ============ ===========
Average number of common shares
outstanding (in thousands) 15,011 14,304 15,866 18,198 22,028
FINANCIAL POSITION:
Cash, cash equivalents and short term
investments, net of short term
borrowings $ 141,812 $ 74,516 $ 174,590 $ 230,584 $ 305,934
Working capital 246,803 196,698 294,276 408,878 329,372
Property, plant and equipment-net 171,024 173,790 816,501 819,077 738,660
Plant additions and improvements 15,200 128,544 104,035 48,250 36,779
Total assets 985,023 913,516 2,673,566 2,712,084 2,061,920
Long-term debt 454,359 504,983 847,720 893,356 350,453
Stockholders' equity 256,424 174,996 377,471 446,512 453,393
NUMBER OF STOCKHOLDERS OF RECORD:
Common 11,440 11,520 11,666 11,915 12,273
Series A Convertible Preferred 34 36 32 31 42
Series B Convertible Preferred 61 73 74 69 79
EMPLOYMENT
Employment costs $ 152,321 $ 414,842 $ 443,333 $ 394,701 $ 204,004
Average number of employees 2,905 7,270 7,535 7,470 4,420
(a) Includes the results of WPC for the period January 1, 2000 through November
16, 2000.
(b) Includes the results of Handy & Harman for the period April 13, 1998
through December 31, 1998.
(c) The financial results of the Company for 1997 were adversely affected by
the WPC strike.
18
NOTES TO FIVE-YEAR STATISTICAL SUMMARY
In 1997, the Company recorded a special charge of $92.7 million
related to a new labor agreement that 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 93/8% 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 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 $900,000 net of tax.
On November 16, 2000 the Company's WPC Group filed petitions seeking
reorganization under Chapter 11 of Title 11 of the United States Bankruptcy
Code, resulting in a non-cash charge of $133.8 million to provide a valuation
reserve against previously recorded net deferred tax assets. As a result of the
Bankruptcy Filing (see Note 2 to the Consolidated Financial Statements), the
Company has, as of November 16, 2000, deconsolidated the balance sheet of its
wholly owned subsidiary WPC. As a result of such deconsolidation, the
accompanying consolidated balance sheet at December 31, 2000 does not include
any of the assets or liabilities of WPC and the accompanying December 31, 2000
Profit and Loss data includes the operating results of WPC for the period
January 1, 2000 through November 16, 2000.
During 2001 and 2000, the Company did not make any purchases of
Common or Preferred Stock. During 1999, 1998 and 1997, the Company purchased
3,594,300; 1,780,307 and 5,537,552 shares of Common Stock, respectively, in open
market transactions.
During 2001, the Company purchased and retired $36.4 million
aggregate principal amount of 10 1/2% Senior Notes in the open market, resulting
in an extraordinary gain of $12.4 million net of tax.
In December 2001, the Company sold its interest in Wheeling-Downs
Racing Association, Inc. for $105 million in cash and recognized a gain of $88.5
million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Risk Factors and Cautionary Statements
This Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), including, in particular, forward-looking statements under the headings
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Item 8. Financial Statements and Supplementary Data." These
statements appear in a number of places in this Report and include statements
regarding WHX's intent, belief or current expectations with respect to (i) its
financing plans, (ii) trends affecting its financial condition or results of
operations, (iii) the impact of competition and (iv) the impact and effect of
the Bankruptcy Filing by the WPC Group. The words "expect," "anticipate,"
"intend," "plan," "believe," "seek," "estimate," and similar expressions are
intended to identify such forward-looking statements; however, this Report also
contains other forward-looking statements in addition to historical information.
19
Any forward-looking statements made by WHX are not guarantees of
future performance and there are various important factors that could cause
actual results to differ materially from those indicated in the forward-looking
statements. This means that indicated results may not be realized.
Factors that could cause the actual results of the WHX Group in
future periods to differ materially include, but are not limited to, the
following:
o The WHX Group's businesses operate in highly
competitive markets and are subject to significant competition from other
businesses;
o A decline in the general economic and business
conditions and industry trends and the other factors detailed from time to time
in the
Company's filings with the Securities and Exchange Commission could continue to
adversely affect the Company's results of operations;
o WHX's senior management may be required to expend a
substantial amount of time and effort dealing with issues arising from the WPC
Group's Bankruptcy Filing, which could have a disruptive impact on management's
ability to focus on the operation of its businesses;
o In connection with the Bankruptcy Filing, WHX
purchased $30.5 million of the senior secured term loan portion of the DIP
Credit Agreement provided to the WPC Group. In addition, at December 31, 2001,
WHX had balances due from WPSC totaling $8.4 million in the form of secured
advances and liquidity support. There can be no assurance that the WPC Group
will be able to repay these loans and advances in full.
o Due to the Bankruptcy Filing, the operations of the
WPC Group are subject to the jurisdiction of the Bankruptcy Court and, as a
result, WHX's access to the cash flows of the WPC Group is restricted.
Accordingly, the WHX Group will have to fund its operations and debt service
obligations without access to the cash flow of the WPC Group beyond 2002;
o The WPC Group has a large net operating loss
carryforward due to prior losses and continues to incur losses. WPC is part of
the Company's consolidated tax group. In accordance with federal tax laws and
regulations, WPC's tax attributes have been utilized by the Company's
consolidated group to reduce its consolidated federal tax obligations. Depending
on the final outcome of the WPC Group's Bankruptcy Filing, the WPC Group's tax
attributes may no longer be available to the WHX Group;
o Various subsidiaries of the WPC Group participate in
the pension plan sponsored by the Company. While such pension plan is fully
funded at December 31, 2001, there can be no assurance that the plan will remain
fully funded. Various developments could adversely affect the funded status of
the plan. Such developments include (but are not limited to): (a) a material
reduction in the value of the pension assets; (b) a change in actuarial
assumptions relating to asset accumulation and liability discount rates; and (c)
events triggering early retirement obligations such as plant shutdowns and/or
large scale hourly workforce reductions resulting from the Bankruptcy Filing or
otherwise. WHX has also agreed to be contingently liable for a portion of the
OPEB Obligations (as defined below), subject to certain conditions. Funding
obligations, if they arise, may have an adverse impact on the WHX Group's
liquidity. WPC Group's ability to maintain its current operating configurations
and levels of permanent employment are dependent upon its ability to maintain
adequate liquidity. There can be no assurances that the WPC Group will be able
to maintain adequate resources;
o Various members of the WPC Group have existing and
contingent liabilities relating to environmental matters, including
environmental capital expenditures, costs of remediation and potential fines and
penalties relating to possible violations of national and state environmental
laws. In the event the WPC Group is unable to fund these liabilities, claims may
be made against WHX for payment of such liabilities;
o WHX, H&H and Unimast each have a significant amount of
outstanding indebtedness, and their ability to access capital markets in the
future to refinance such indebtedness may be limited; and
o The respective credit agreements of H&H and Unimast
have certain financial covenants that limit the amount of cash distributions
that can be paid to WHX.
20
Bankruptcy Filing of the WPC Group
On November 16, 2000, the WPC Group filed petitions for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Ohio. As a result, subsequent to the commencement of the
Bankruptcy Filing, the WPC Group sought and obtained several orders from the
Bankruptcy Court that were intended to enable the WPC Group to continue business
operations as debtors-in-possession. Since the Petition Date, the WPC Group's
management has been in the process of stabilizing their businesses and
evaluating their operations, while continuing to provide uninterrupted services
to their customers.
On November 17, 2000, the Bankruptcy Court granted the WPC Group's
motion to approve a $290 million Debtor in Possession Credit Agreement ("DIP
Credit Agreement") provided by Citibank, N.A., as initial issuing bank, Citicorp
U.S.A., Inc., as administrative agent, and the DIP Lenders. Pursuant to the DIP
Credit Agreement, Citibank, N.A. made term loan advances to the WPC Group up to
a maximum aggregate principal amount of $35 million. In addition, the DIP
Lenders agreed, subject to certain conditions, to provide the WPC Group with
revolving loans, swing loans and letter of credit accommodations in an aggregate
amount of up to $255 million. On January 2, 2002, the WPC Group requested and
received a reduction in the revolving loans, swing loans and letter of credit to
a maximum aggregate amount of up to $175 million. In connection with the
Bankruptcy Filing, WHX had guaranteed $30 million of the term loan portion of
the DIP Credit Agreement ("Term Loan") and deposited in a pledged asset account
$33 million of funds in support of such guaranty. Effective as of June 1, 2001,
WHX purchased a participation interest comprising an undivided interest in the
Term Loan in the amount of $30 million, plus interest accrued but not paid on
such amount of the Term Loan through June 1, 2001. Concurrently with such
transaction, WHX's guaranty of $30 million of the Term Loan described above was
terminated and the $33 million of funds previously deposited in a pledged asset
account in support of such guaranty were released to WHX. WHX paid to Citibank
$30.5 million of such deposited funds to purchase WHX's participation interest
in the Term Loan.
WPC borrowings outstanding under the DIP Credit Facility for
revolving loans totaled $127.2 million and $123.9 million at December 31, 2001
and 2000, respectively. The weighted-average interest rates on the DIP Credit
Facility for revolving loans were 7.4% and 10.1% in 2001 and 2000, respectively.
Term loans under the DIP Credit Facility totaled $34.4 million and $35.1 million
at December 31, 2001 and 2000, respectively. At March 23, 2002, availability
under the DIP Credit Facility was $4.6 million. The DIP Credit Facility expires
on the earlier of November 17, 2002 or the completion of a Plan of
Reorganization. WPC intends to have completed a Plan of Reorganization by
November 16, 2002. If a Plan of Reorganization is not completed by then, WPC
will pursue an extension of or a replacement of the current DIP Credit Facility.
There can be no guarantee that this will occur.
Although the WPC Group expects to file a Plan of Reorganization at
an appropriate time in the future, there can be no assurance at this time that a
Plan of Reorganization will be proposed by the WPC Group, approved or confirmed
by the Bankruptcy Court, or that such plan will be consummated. The WPC Group
currently has the exclusive right to file a Plan of Reorganization. The
exclusive filing period has been extended most recently until April 25, 2002 by
the Bankruptcy Court at the WPC Group's request, and while the WPC Group intends
to request extensions of the exclusivity period if necessary, there can be no
assurance that the Bankruptcy Court will grant future extensions. If the
exclusivity period were to expire or be terminated, other interested parties,
such as creditors of the WPC Group, would have the right to propose alternative
plans of reorganization.
During the period January 1, 2001 through December 31, 2001, the WPC
Group incurred a net loss of $172.2 million, which is not reflected in the
Company's December 31, 2001 consolidated results of operations.
At January 1, 2000, $136.8 million of the Company's net equity
represented its investment in the WPC Group. In addition to this investment,
WHX, on November 17, 2000, guaranteed $30 million of the WPC Group's
debtor-in-possession term loan. Such guaranty was terminated effective as of
June 1, 2001 concurrently with WHX's purchase of a participation interest in the
Term Loan as discussed above. The recognition of the WPC Group's net loss of
$176.6 million, in the year 2000, has eliminated the investment's carrying value
of $136.8 million. In November of 2000, WHX recorded a liability of $39.8
million representing the excess of the WPC Group's loss over the carrying amount
of the investment.
A Settlement and Release Agreement ("Settlement Agreement") by and
among WPSC, WPC, WHX, and certain affiliates of WPSC, WPC and WHX, received
approval of the United States Bankruptcy Court for the Northern District of Ohio
on May 24, 2001, was entered into on May 25, 2001, and became effective on May
29, 2001. Pursuant to the terms of the Settlement Agreement certain outstanding
claims among the parties thereto were resolved, including without limitation,
all inter-company receivables and payables between the WHX Group and the WPC
Group.
21
The Settlement Agreement provided, in part, that the Settlement
Agreement shall be effective upon the occurrence of each of the following
transactions, (i) the payment by WHX to WPC of $17 million; (ii) the exchange of
releases between the WPC Group and the WHX Group; (iii) WHX or its designee
would enter into a binding agreement to purchase certain assets of
Pittsburgh-Canfield Corporation ("PCC") for $15 million, plus the assumption of
certain trade payables, subject to bidding procedures as may be established by
the Bankruptcy Court, and certain other terms and conditions; (iv) the
termination of the Tax Sharing Agreements between WHX and WPC; (v) WHX would
deliver an agreement to the WPC Group whereby it agreed not to charge or
allocate any pension obligations, expenses or charges to the WPC Group with
respect to the WHX Pension Plan, subject to certain limitations as provided
therein, through and including the earlier of the effective date of a plan or
plans of reorganization and December 31, 2002; (vi) the DIP Credit Agreement
shall have been amended as provided in the Settlement Agreement; (vii) WPC Land
Corporation shall execute such instruments as may be necessary to effect the
transfer of title, to WPSC, of certain properties specified in the Settlement
Agreement; and (viii) the lenders party to the DIP Credit Agreement shall have
consented to the transaction described in the Settlement Agreement. Such
transactions, other than the acquisition of certain assets of
Pittsburgh-Canfield Corporation, all occurred effective May 29, 2001. The sale
of certain assets of Pittsburgh-Canfield Corporation closed on June 29, 2001.
The PCC agreement includes a one-year repurchase option for the seller. The
repurchase price is $15 million plus the sum of environmental expenditures and
capital expenditures made by the Company. In addition, the repurchase price will
be adjusted for any changes in working capital.
As a result of the total cash payments of $32 million to the WPC
Group by WHX, all intercompany receivables and liabilities (except for
commercial trade transactions) including the liability for redeemable common
stock were settled. In addition, WHX recorded the fair value of the net assets
of PCC of $5.4 million.
On October 22, 2001, the Bankruptcy Court entered an order
("October Order"), approving several transactions intended, among other things,
to provide the WPC Group with additional liquidity. As part of the October
Order, the Bankruptcy Court approved a Memorandum of Understanding by and among
the Company, Wheeling-Pittsburgh Corporation ("WPC"), Wheeling-Pittsburgh Steel
Corporation ("WPSC") and the United Steelworkers of America, AFL-CIO-CLC
("USWA"), pursuant to which the Company agreed to provide to WPSC (1) up to $5
million of secured loans and $5 million of liquidity support (part of which
consisted of secured financing terms) during the period from the Order through
January 31, 2002, (2) if certain conditions are met, an additional $2 million of
secured loans (for an aggregate of $7 million) and the maintenance of the $5
million of liquidity support referred to above, during the period from February
1, 2002 through March 31, 2002, (the conditions were not met, accordingly the
additional $2.0 million in secured loans were not made), and (3) a $25 million
contribution to a new WPSC defined benefit pension plan contingent upon a
confirmed WPSC Chapter 11 plan of reorganization. Through December 31, 2001 WHX
had advanced $5.0 million of the secured loans and up to $5.5 million of secured
financing. At December 31, 2001 the outstanding balance of these secured
advances was $5.0 million and $3.4 million of liquidity support.
The October Order also approved a Supplemental Agreement among the
members of the WPC Group and WHX under which all of the extensions of credit
referred to in the preceding paragraph are granted super-priority claim status
in WPSC's Chapter 11 case and are secured by a lien on substantially all of the
assets of WPSC, junior to the liens, security interests and super-priority
claims of the lenders to WPSC under the DIP Credit Agreement. The Supplemental
Agreement also provides, among other things, that WHX may sell, transfer or
dispose of the stock of WPC free from the automatic stay imposed under the
Bankruptcy Code, and under specified circumstances requires WPC to support
certain changes to the WHX Pension Plan.
Additionally, the October Order approved the terms of the Modified
Labor Agreement ("MLA") by and among WPC, WPSC and the USWA. WHX is not a party
to the MLA. The MLA modifies the current WPSC collective bargaining agreement to
provide for, among other things, immediate reductions in wages and the cost of
providing medical benefits to active and retired employees in exchange for
improvement in wages and pension benefits for hourly employees upon a confirmed
WPSC Chapter 11 plan of reorganization. The MLA is part of a comprehensive
support arrangement that also involves concessions from WPSC salaried employees,
WPSC's vendors and other constituencies in the Chapter 11 proceedings.
In January 2002, WPSC finalized a financial support plan which
included a $5 million loan from the state of West Virginia, a $7.2 loan from the
state of Ohio, $10 million in advance by the Unimast segment for future steel
purchases, a portion of which shall be delivered on or before March 31, 2002,
and additional wage and salary deferrals from WPSC union and salaried employees.
22
Management of the Company cannot at this time determine with
certainty the ultimate outcome of the Chapter 11 proceedings; however it is
possible that the following outcomes could result:
o The WPC Group could reorganize, and its creditors could receive a
portion of their claims in cash or in stock of WPC or WPSC.
o The WPC Group could be sold in its entirety or segments could be sold,
and the proceeds from such sale(s) would be utilized to satisfy
creditor claims.
o The creditors could assume ownership of the WPC Group or WPSC and
continue to operate such businesses.
In each of the above possible outcomes, the WHX Group would have
little or no future ownership in or involvement with the WPC Group, and the WHX
Group future cash obligations to or on behalf of the WPC Group would be minimal
to none (other than the $25.0 million pension contribution referred to above).
It is also possible that none of the above outcomes would occur and the WPC
Group may shut down a number of their operations. According to WHX's preliminary
evaluation of potential pension obligations, if a partial shutdown of the WPC
Group's operations were to occur in the immediate future WHX's liability for
early retirement pension benefits could range from approximately $80 million to
$100 million. It is also possible that the WPC Group could cease operations in
their entirety and this liability would then be significantly greater. However,
management does not believe this occurrence is likely. Under current pension law
and regulations based on the WHX's analysis of the current funded status of the
pension plan, if a partial shutdown were to occur after January 1, 2002, the
cash funding obligations related to such partial shutdown would likely not begin
until 2003 and would extend over several years. Such cash funding obligations
would have a material adverse impact on the liquidity, financial position and
capital resources of WHX. WHX's funding obligation and the impact on its
liquidity, financial position and capital resources could be substantially
reduced or eliminated if (1) a partial shutdown, if it occurs, were to occur at
such a time that the fair market value of the assets of the plan approximates or
exceeds the plan's liabilities (including the early retirement benefits), (2) a
shutdown were to occur gradually over several years or (3) the number of the WPC
Group's operations shut down were less than those assumed in estimating the
above-mentioned amounts.
In connection with past collective bargaining agreements by and
between the WPC Group and the United Steelworkers of America, AFL-CIO-CLC
("USWA"), the WPC Group is obligated to provide certain medical insurance, life
insurance, disability and surviving spouse retirement benefits to retired
employees and their dependents ("OPEB Obligations"). WHX is not a signatory to
any of these agreements. However, WHX has separately agreed to be contingently
liable for a portion of the OPEB obligations. WHX's contingent obligation would
be triggered in the event that the WPC Group were to fail to satisfy its OPEB
Obligations. WHX's contingent obligation is limited to 25% of the Accumulated
Post-Retirement Benefit Obligation with respect to the WPC Group's employees and
retirees represented by the USWA. The total OPEB Obligation disclosed in the
Wheeling Pittsburgh Steel Corporation's December 31, 2001 Consolidated Financial
Statements amounted to $307.1 million. WHX has estimated that approximately 85%
of employees and retirees entitled to such OPEB obligations are represented by
the USWA.
WHX's contingent obligation exists only so long as (1) a majority of
the directors of WPSC or WPC are affiliated with WHX; (2) WHX controls the Board
of Directors of WPSC or WPC through appointment or election of a majority of
such directors; or (3) WHX, through other means, exercises a level of control
normally associated with (1) or (2) above.
OVERVIEW
WHX is a holding company that has been structured to invest in
and/or acquire a diverse group of businesses on a decentralized basis. WHX's
primary businesses currently are: H&H, a diversified manufacturing company whose
strategic business segments encompass, precious metal plating and fabrication,
specialty wire and tubing, and engineered materials; and Unimast, a leading
manufacturer of steel framing and other products for commercial and residential
construction; WHX's other business consists of WPC and its subsidiaries
including WPSC, a vertically integrated manufacturer of value-added and flat
rolled steel products which sought bankruptcy protection in November 2000.
WHX 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. WHX has provided, and may from time to time in the future,
provide information to interested parties regarding portions of its businesses
for such purposes.
23
The following table presents information about reported segments for the years
ended December 31:
(in thousands)
--------------- ----------------- ----------------
2001 2000 1999
--------------- ----------------- ----------------
Revenue
H&H Precious Metal $ 168,308 $ 237,426 $ 233,695
H&H Wire & Tubing 133,621 158,008 158,948
H&H Engineered Materials 74,333 73,412 75,696
Unimast 244,260 239,276 226,993
--------------- ----------------- ----------------
Sub total 620,522 708,122 695,332
WPC Group - 1,050,590 1,117,744
--------------- ----------------- ----------------
Total segment revenue 620,522 1,758,712 1,813,076
Intersegment revenue - (13,253) (48,377)
--------------- ----------------- ----------------
Consolidated revenue $ 620,522 $ 1,745,459 $ 1,764,699
=============== ================= ================
Segment operating income
H&H Precious Metal $ 7,982 $ 22,129 $ 22,747
H&H Wire & Tubing 3,407 13,862 15,737
H&H Engineered Materials 6,285 7,698 9,413
Unimast 14,239 15,926 19,499
--------------- ----------------- ----------------
Sub total 31,913 59,615 67,396
WPC Group - (50,035) (17,052)
--------------- ----------------- ----------------
31,913 9,580 50,344
Unallocated corporate expenses 16,457 6,154 6,872
Goodwill amortization 8,879 9,442 8,685
--------------- ----------------- ----------------
Operating income 6,577 (6,016) 34,787
Interest expense 48,905 86,222 87,851
Gain on sale of Wheeling Downs 88,517 - -
Other income (expense) 10,604 (15,207) 30,800
--------------- ----------------- ----------------
Income (loss) before taxes and extraordinary item 56,793 (107,445) (22,264)
Income tax expense (benefit) (31,971) 73,600 (6,430)
--------------- ----------------- ----------------
Income (loss) before extraordinary item 88,764 (181,045) (15,834)
Extraordinary item-net of tax 12,357 - 896
--------------- ----------------- ----------------
Net income (loss) $ 101,121 $ (181,045) $ (14,938)
=============== ================= ================
24
2001 COMPARED TO 2000
The Bankruptcy Filing and the resultant deconsolidation of WPC as of
November 16, 2000 have affected comparisons between year 2001 and year 2000
results.
Sales in 2001 were $620.5 million compared with $1.7 billion in
2000, which included WPC Group sales of $1.0 billion. Excluding the WPC Group
sales, net sales for 2001 declined $87.6 million. Sales decreased by $69.1
million at the H&H Precious Metal Segment and $24.4 million at the H&H Wire &
Tubing Segment. Sales increased by $0.9 million at the H&H Engineered Materials
Segment and $5.0 million at the Unimast Segment.
Operating income for 2001 was $6.6 million compared to an operating
loss of $6.0 million in 2000. WPC Group reported an operating loss of $50.0
million in 2000. Operating income at the remaining four reported segments
declined from $59.6 million in 2000 to $31.9 million in 2001. Unallocated
corporate expenses increased from $6.2 million to $16.5 million. The increase is
primarily due to legal and professional fees due to the WPC bankruptcy, and to
costs and expenses no longer allocated to the WPC Segment, including pension
expense of $4.5 million.
Interest expense in 2001 decreased by $37.3 million to $48.9 million
from $86.2 million in 2000. After excluding WPC Group interest of $34.1 million
in the 2000 period, interest expense decreased by $3.2 million. Handy & Harman's
interest expense decreased from $18.6 million in 2000 to $16.0 million in 2001,
reflecting lower borrowings and lower interest rates. Unimast interest expense
increased by $0.1 million from $2.3 million in 2000 to $2.4 in 2001 due to
increased borrowings related to the purchase of certain assets of PCC offset by
lower interest rates. The remaining $0.7 million decline in interest expense is
related to the early retirement of $36.4 million of 10 1/2 % Senior Notes,
offset by increased amortization of consent fees.
Other income was $10.6 million for 2001 compared to $15.2 million of
expense for 2000. The income in 2001 was primarily related to income from WHX
Entertainment of $15.0 million and net investment losses of $4.4 million. The
2000 period loss included net investment losses of $17.2 million, minority
interest expense of $2.2 million, other expenses of $6.5 million including
losses related to the WPC Group, and income from WHX Entertainment of $10.7
million.
In December 2001, WHX Entertainment sold its 50% interest in
Wheeling Downs Racing Association, Inc. for $105 million in cash, resulting in
an $88.5 million pre-tax gain. In 2002, WHX has used a portion of these proceeds
to purchase and retire $82.5 million aggregate principal amount of Senior Notes
in the open market for $50.6 million as of March 21, 2002. As a result of the
Senior Notes purchased and retired, in 2002 and 2001, cash interest expense will
be reduced by $12.5 million annually.
In 2001, the effective tax rate, excluding extraordinary items, is
56.3%, which reflects a tax benefit of $32.0 million on $56.8 million of pre-tax
income. As a result of the termination of the Tax Sharing Agreement with the WPC
Group, the Company recognized the benefit of the WPC Group's current year losses
to offset taxable income from WHX's other operations. The Company was also able
to recognize additional benefits from net operating losses previously
unavailable to the Company.
The 2000 tax provision included a reversal of $25.3 million of
provisions for prior year taxes that are no longer required. In addition, a
non-cash charge of $133.8 million was made to provide a valuation reserve
against previously recognized net deferral tax assets as a result of the
November 16, 2000 Bankruptcy Filing.
The extraordinary item of $19.0 million ($12.4 million after tax) in
2001 reflects the gain on the early retirement of $36.4 million of 10 1/2%
Senior Notes.
Net income for 2001 amounted to $101.1 million or $3.21 income per
share of common stock after adjusting for preferred stock dividends as compared
to a net loss of $181.0 million or $14.10 loss per share of common stock after
adjusting for preferred dividends.
The comments that follow compare revenues and operating income by
operating segment for the years ended 2001 and 2000:
25
Handy & Harman Precious Metal
- -----------------------------
Sales for the Precious Metals Segment decreased $69.1 million to
$168.3 million. Approximately 20% of the sales decrease was attributable to the
decline in the market price of precious metals, 29% was due to the dissolution
of a fully consolidated joint venture as of December 31, 2000, which had $19.9
million in sales and $7.4 million operating income (at 100%) in fiscal 2000, and
the balance of the decrease was primarily due to the slowdown in the economy.
Operating income decreased $14.1 million to $8.0 million. Included in the 2001
period was a $3.3 million precious metals lower of cost or market reserve
established in the first quarter and a $0.4 million LIFO loss on the sale of
precious metals, partially offset by favorable precious metal gains of $1.4
million. The 2000 period includes a bad debt reserve of $1.0 million, a LIFO
loss of $2.3 million on the sale of precious metal, facility closure cost of
$0.8 million and $1.0 million of legal costs associated with the dissolution of
a precious metal plating joint venture. Excluding these charges, the LIFO loss,
and the favorable precious metal gains, operating income decreased $17.0 million
due to the dissolution of a fully consolidated joint venture, as stated above,
and the slowdown in the economy.
On January 20, 2002, this segment's major plating facility, Sumco
Inc., located in Indianapolis, Indiana had severe fire damage that caused the
temporary closure of this facility. The Company believes it has adequate
insurance for both the physical property damage and business interruption.
Insurance progress payments of $1.0 million have been received as of March 1,
2002. Partial resumption of operations occurred on February 11, 2002 and repairs
to the building, its infrastructure and replacement of machinery and equipment
are continuing. Sumco Inc. will resume complete operations at the facility as
soon as reasonably possible.
Handy & Harman Wire & Tubing
- ----------------------------
Sales for the Wire & Tubing Segment decreased $24.4 million to
$133.6 million and operating income declined by $10.5 million to $3.4 million
due to weakness in the automotive, semiconductor fabrication and
telecommunications markets and startup costs on new refrigeration programs of
approximately $3.0 million. Charges for inventory reserves of approximately $2.5
million were recorded in 2001. The 2000 period included a charge of
approximately $2.3 million for legal and settlement costs for this segments
cable division.
Handy & Harman Engineered Materials
- -----------------------------------
Sales for the Engineered Materials Segment increased $0.9 million to
$74.3 million and operating income decreased $1.4 million to $6.3 million due to
obsolete and slow moving inventory charges of approximately $0.8 million,
additional expenses associated with product and market expansion activities, and
lower selling prices.
Unimast
- -------
On June 29, 2001, WHX acquired certain assets of PCC from the WPC
Group. The results of operations of PCC are included in the Unimast Segment
beginning July 1, 2001. Sales for the Unimast Segment were $244.3 million in
2001 compared to $239.3 million in 2000, an increase of $5.0 million. This
increase includes $11.9 million in sales for PCC. Excluding PCC, sales declined
$6.9 million. This decline in sales dollars reflects an increase in sales
volume, offset by a significant reduction in selling prices. Operating income
for this segment declined from $15.9 million in 2000 to $14.2 million in 2001.
PCC contributed $1.6 million in operating income in 2001. Excluding PCC,
operating income declined by $3.3 million in 2001. Despite increased sales
volumes, manufacturing efficiencies, and lower raw material costs operating
income was adversely affected by lower unit selling prices. In addition, the
segment recorded a $2.0 million reserve for bad debts in 2001 relating to a
chapter 11 bankruptcy filing of a major customer.
2000 COMPARED TO 1999
The Bankruptcy Filing and the resultant deconsolidation of WPC as of
November 16, 2000 have affected comparisons between year 2000 and year 1999
results.
Net sales for 2000 decreased slightly to $1.75 billion from $1.77
billion in 1999. Sales, excluding inter-segment revenue, decreased by $32.0
million at the WPC Group, $0.9 million at the H&H Wire & Tubing Segment, and
$2.3 million at the H&H Engineered Materials Segment. Sales increased by $3.7
million at the H&H Precious Metal Segment and $12.3 million at the Unimast
Segment.
26
Operating loss for 2000 was $6.0 million compared to operating
income of $34.8 million in 1999. The WPC Group had an operating loss of $50.0
million in 2000 compared to an operating loss of $17.1 million in 1999.
Operating income at the remaining four reportable segments declined from $67.4
million in 1999 to $59.6 million in 2000. Unallocated corporate expenses
declined from $6.9 million in 1999 to $6.2 million in 2000.
Interest expense decreased to $86.2 million in 2000 from $87.9
million in 1999. H&H interest expense increased to $18.6 million in 2000 from
$17.8 million in 1999, reflecting higher interest rates in 2000 compared to
1999. Unimast interest expense increased to $2.9 million in 2000 from $1.9
million in 1999, reflecting increased borrowings in 2000 as well as higher
interest rates. The WPC Group's interest expense decreased to $34.1 million in
the ten and a half-month period of 2000 from $37.9 million in the year of 1999
due to the disparate period comparison, offset by increased borrowings and
higher rates under the Revolving Credit Facility, as well as higher levels of
long term debt.
Other income decreased $46.0 million to $15.2 million of other
expense in 2000, compared to $30.8 million of other income in 1999. The change
in other income (expenses) is due primarily to declines of $18.2 million in
value in the Company's investment portfolio of fixed income securities and
marketable equity securities in 2000 compared to increases in value of $29.1
million in 1999. H&H's other expenses increased to $3.3 million in 2000 versus
$1 million in 1999 due to earnings of investments in affiliates accounted for
under the equity method of accounting, minority interest expense in a joint
venture, increased non-operating costs from the closure of a plating facility,
loss on the disposal of property, plant and equipment, the buy-out of a lease in
the U.K., and expenses and reserves for other non-operating
facilities/businesses. WHX Entertainment's other income increased $3.9 million
to $10.7 million in 2000, compared to $6.8 million in 1999. The increase is
attributable to the 2000 expansion of the video lottery gaming capacity at its
greyhound racetrack in West Virginia. The WPC Group's other income decreased $3
million to $2.6 million expense in the ten and a half-month period of 2000 as
compared to the year 1999. The decrease is due to lower equity income from joint
venture operations, lower royalty income earned and increased securitization
fees.
The tax provision for 2000 increased $80 million to $73.6 million,
compared to the tax benefit for 1999 of $6.4 million. The increase in the tax
provision relates primarily to the WPC Group's non-cash charge of $133.8 million
to provide a valuation reserve against previously recognized net deferred tax
assets as a result of the November 16, 2000 Bankruptcy Filing.
Loss before extraordinary items in 2000 totaled $181 million or
$14.10 loss per share of common stock, compared to loss before extraordinary
items in 1999 of $15.8 million or $2.30 loss per share of common stock. There
were no extraordinary items in 2000 as compared to $1.4 million ($.9 million net
of tax) extraordinary gain in 1999, which represents the discount on the
purchase of $20.5 million aggregate principal amount of 10 1/2% Senior Notes in
the open market.
Net loss for 2000 totaled $181 million or $14.10 loss per share of
common stock after adjusting for preferred stock dividends, as compared to a net
loss of $14.9 million, or $2.24 loss per share of common stock after adjusting
for preferred stock dividends in 1999.
The comments that follow compare revenues and operating income by
operating segment for the years ended 2000 and 1999:
Handy & Harman Precious Metal
- -----------------------------
Sales for the Precious Metal Segment increased $3.7 million to
$237.4 million. Precious Metal plating revenue gains due to automotive industry
demand were offset by the decline in the market price of precious metals and
also the closure of a brazing sales office in the United Kingdom in the latter
part of 1999.
Operating income decreased $0.6 million to $22.1 million. Included
in 2000 is a LIFO loss on the sale of precious metal amounting to $2.3 million,
a bad debt reserve of $1.0 million, facility closure costs of $0.8 million and
$1.0 million of legal costs associated with the dissolution of a precious metal
plating joint venture. 1999 includes a $2.0 million lower of cost or market
reserve on gold inventory, a LIFO gain of $2.7 million on the sale of precious
metal, favorable precious metal gains of $1.2 million and a restructuring charge
of $2.1 million related to the Precious Metals Fabrication Group. Excluding
these one time unusual charges and precious metal gains and losses, operating
income increased $4.4 million primarily due to increased plating demands from
the computer and automotive industries.
27
Handy & Harman Wire & Tubing
- ----------------------------
Sales for the Wire & Tubing Segment decreased $0.9 million to $158.0
million and operating income decreased $1.9 million to $13.9 million. Included
in operating income for 2000 and 1999 are legal and settlement costs of $2.3
million and $0.6 million, respectively related to this segment's cable division.
Also included in 1999 are restructuring costs of $0.5 million related to the
closure of a wire facility in the United Kingdom.
Handy & Harman Engineered Materials
- -----------------------------------
Sales for the Engineered Materials Segment decreased $2.3 million to
$73.4 million and operating income decreased $1.7 million primarily due to loss
of a major customer and costs related to the development of new products and new
materials.
Unimast
- -------
Sales increased $12.3 million to $239.3 million in 2000 compared to
$227.0 million in 1999. The increase in sales was primarily related to growth in
the construction market and the acquisition of Vinyl Corporation in July 1999,
partially offset by reduced selling prices. Operating income declined to $15.9
million in 2000 from $19.5 million in 1999. This decline was primarily related
to lower sales prices and an unfavorable product mix, partially offset by lower
material costs.
WPC Group
- ---------
Net sales of the WPC Group for the ten and a half-month period of
2000 totaled $1.0 billion on shipments of 2.1 million tons of steel products,
compared to $1.1 billion on shipments of 2.4 million tons for the full year
1999. The decrease in tons shipped is primarily attributable to the disparate
periods, as well as a planned outage of all aspects of its primary operations
during the 2000 period. Average sales per ton increased $446.0 per ton shipped
to $487.0 per ton shipped primarily due to a slight increase in steel prices, a
higher value-added mix of products sold, and increased sales of coke during the
2000 period as compared to the full year of 1999. Operating loss for the WPC
Group increased from a loss of $17.1 million in 1999 to $50.0 million for the
ten and a half-month period of 2000. This was primarily attributable to a
significant increase in cost of sales. Cost of goods sold for the WPC Group
increased from $395.0 per ton shipped in 1999 to $447.0 per ton shipped in the
ten and one half-month period of 2000. The increase in operating costs per ton
reflects lower production levels due to a planned outage of all of its primary
operations during the 2000 period, which resulted in less absorption of fixed
costs. The increase in operating costs of the WPC Group is due to a higher cost
sales mix, increased raw material and energy costs and the cost of making
increased volumes of coke sold in the open market as compared to the 1999
period.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Cash flows provided by (used in) operating, investing and financing
activities for 2001 totaled ($14.2) million, $52.1 million and ($34.9) million,
respectively. As a result of the Bankruptcy Filing, any future cash flow
generated or required by the WPC Group will not be available to or provided by
the WHX Group. However, while WHX has no current intention to provide the WPC
Group with additional funding other than the possible pension contribution
discussed above it may elect in the future to do so if it determines that it is
in WHX's best interest. Short-term trading investments and related short-term
borrowings, reported as cash flow from operating activities, used a net $64.6
million of funds in 2001 versus providing $94.5 million in 2000. Working capital
accounts (excluding cash, short-term investments, short-term borrowings and
current maturities of long term debt) provided $44.8 million of funds. Other
current assets provided $2.4 million. Accounts receivable provided $18.9
million, inventories provided $36.8 million, trade payables provided $0.4
million, and other current liabilities used $13.7 million.
In December 2001, WHX Entertainment sold its 50% interest in
Wheeling-Downs Racing Association, Inc. for $105 million in cash, resulting in
an $88.5 million pre-tax gain. During the period January 1, 2002 through March
21, 2002, WHX used $50.6 million of these proceeds to purchase $82.5 million
aggregate principal amount of Senior Notes in the open market. WHX received a
management fee from Wheeling-Downs Racing Association, Inc. of $12.9 million and
$7.7 million, which are included in cash provided by operating activities in
2001 and 2000, respectively.
28
In 2001, the Company purchased and retired $36.4 million aggregate
principal amount of the Notes in the open market resulting in an extraordinary
gain of $12.4 million net of tax, and a use of cash of $15.9 million. As a
result of the 2001 purchases and an additional $82.5 million aggregate principal
purchased through March 21, 2002, future cash interest expense will be reduced
by $12.5 million annually.
In 2001, in connection with the term loan portion of the WPC Group's
debtor-in-possession financing, WHX purchased a participation interest
comprising an undivided interest in the term loan in the amount of $30.5
million. In addition, at December 31, 2001, WHX had balances due from WPSC
totaling $8.4 million in the form of secured advances and liquidity support.
There can be no assurances that the WPC Group will be able to repay these loans
and advances in full.
A Settlement and Release Agreement ("Settlement Agreement") by and
among WPSC, WPC, WHX, and certain affiliates of WPSC, WPC and WHX, received
approval of the United States Bankruptcy Court for the Northern District of Ohio
on May 24, 2001, was entered into on May 25, 2001, and became effective on May
29, 2001. Pursuant to the terms of the Settlement Agreement certain outstanding
claims among the parties thereto were resolved, including without limitation,
all inter-company receivables and payables between the WHX Group and the WPC
Group.
The Settlement Agreement provided, in part, that the Settlement
Agreement shall be effective upon the occurrence of each of the following
transactions, (i) the payment by WHX to WPC of $17 million; (ii) the exchange of
releases between the WPC Group and the WHX Group; (iii) WHX or its designee
would enter into a binding agreement to purchase certain assets of
Pittsburgh-Canfield Corporation ("PCC") for $15 million, plus the assumption of
certain trade payables, subject to bidding procedures as may be established by
the Bankruptcy Court, and certain other terms and conditions; (iv) the
termination of the Tax Sharing Agreements between WHX and WPC; (v) WHX would
deliver an agreement to the WPC Group whereby it agreed not to charge or
allocate any pension obligations, expenses or charges to the WPC Group with
respect to the WHX Pension Plan, subject to certain limitations as provided
therein, through and including the earlier of the effective date of a plan or
plans of reorganization and December 31, 2002; (vi) the DIP Credit Agreement
shall have been amended as provided in the Settlement Agreement; (vii) WPC Land
Corporation shall execute such instruments as may be necessary to effect the
transfer of title, to WPSC, of certain properties specified in the Settlement
Agreement; and (viii) the lenders party to the DIP Credit Agreement shall have
consented to the transaction described in the Settlement Agreement. Such
transactions, other than the acquisition of certain assets of
Pittsburgh-Canfield Corporation, all occurred effective May 29, 2001. The sale
of certain assets of Pittsburgh-Canfield Corporation closed on June 29, 2001.
The PCC agreement includes a one-year repurchase option for the seller. The
repurchase price is $15 million plus the sum of environmental expenditures and
capital expenditures made by the Company. In addition, the repurchase price will
be adjusted for any changes in working capital.
As a result of the total cash payments of $32 million to the WPC
Group by WHX, all intercompany receivables and liabilities (except for
commercial trade transactions) including the liability for redeemable common
stock were settled. In addition, WHX recorded the fair value of the net assets
of PCC of $5.4 million.
In 2001, $15.2 million was spent on capital improvements in the WHX
Group. It is anticipated that capital expenditures for the WPC Group will be
minimized during the Chapter 11 proceedings until liquidity is sufficient and
stabilized. These capital expenditures will be obligations of the WPC Group. To
the extent the WPC Group does not have the funds required to make such
expenditures, there may be a material adverse effect on the business and
operations of the WPC Group. The WHX Group has no obligation to fund any of the
WPC Group's future capital expenditures, and does not anticipate on doing so. In
the event that the WPC Group is unable to fund its environmental capital
expenditures, claims may be made against WHX for payment of such costs.
The WHX Group has a significant amount of outstanding
indebtedness, and its ability to access capital markets in the future may be
limited. However, management believes that cash on hand and future operating
cash flow will enable the WHX Group to meet its cash needs for the next twelve
months. The respective credit agreements of H&H and Unimast have certain
financial covenants that limit the amount of cash distributions that can be paid
to WHX.
The Company's Handy & Harman and Unimast subsidiaries, and the WPC
Group maintain separate and distinct credit facilities with various financial
institutions.
29
WHX GROUP
On October 4, 2000, WHX successfully completed a solicitation of
consents from holders of its 10 1/2 % Senior Notes due 2005 ("Notes") to amend
certain covenants and other provisions of the indenture dated as of April 7,
1998 ("Indenture") governing the Notes. The Supplemental Indenture reflecting
such amendment ("Supplemental Indenture") provides, among other things, for
amendments to certain covenants which restrict the Company's ability to make
restricted payments (as defined in the Indenture), incur additional
indebtedness, make permitted investments or utilize proceeds from asset sales.
The Supplemental Indenture also prohibits the payment of dividends on the
Company's preferred stock until October 1, 2002, and thereafter only in the
event such payments satisfy certain conditions set forth in the Indenture, as
amended by the Supplemental Indenture. In addition, the amendments also remove
as events of default under the Indenture those relating to defaults under any
mortgage, indenture or instrument by, judgments against and bankruptcy,
insolvency and related filings and other events of, the WPC Group or any of its
direct or indirect subsidiaries. Accordingly, the Bankruptcy Filing is not an
event of default under the Notes. In connection with the solicitation the
Company made a payment equal to 2% of the principal amount of the Notes ($20 in
cash for each $1,000 principal amount of Notes) to each holder of Notes whose
consent was received and accepted prior to the expiration date. Such payments to
bond holders aggregated approximately $5.5 million.
On July 30, 1998, H&H entered into a $300 million Senior Secured
Credit facility ("H&H Facilities") with Citibank, N.A., as agent. The H&H
Facilities are comprised of (i) a $100 million 6-year Revolving Credit Facility,
(ii) a $25 million Delayed Draw Term Loan Facility (now expired), (iii) a $50
million 6-year Term Loan A Facility, and (iv) a $125 million 8-year Term Loan B
Facility. Interest under the H&H 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, 2001 are (a) in the case of the Term A 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 H&H
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 H&H Facilities
have certain financial covenants restricting indebtedness, liens and limiting
cash distributions that can be made to WHX. Certain financial covenants
associated with leverage, fixed charge coverage, capital spending and interest
coverage must be maintained. In 2001, H&H received capital contributions of $6.3
million from WHX in order to remain in compliance with certain of these
financial covenants. Such funds were utilized to reduce H&H debt. At December
31, 2001, H&H was in compliance with all covenants. Borrowings outstanding under
the H&H Facilities at December 31, 2001 totaled $168.2 million. Letters of
credit outstanding under the H&H Facilities were $14.7 million at December 31,
2001. Total funds available under the H&H Facilities at December 31, 2001 were
$28.3 million. The Bankruptcy Filing of the WPC Group is not an event of default
under the H&H Facilities.
On June 1, 2000, Unimast entered into a loan agreement with the
Will-Kankakee Regional Development Authority to issue $6.1 million of Series
2000 Industrial Development Bonds ("Bonds"). The Bonds are 30-year variable rate
bonds (set on a weekly basis) with the current rate set at 4%. The Bonds were
issued to finance the cost of capital projects for Unimast, specifically a
150,000 square foot facility in Joliet, Illinois and related equipment. The
Bonds are tax-exempt for federal income tax purposes and are secured by a direct
pay letter of credit issued by Citibank, N.A. The Bankruptcy Filing of the WPC
Group is not an event of default under the Bonds.
On November 24, 1998, Unimast entered into a Revolving Credit
Agreement ("Unimast RCA") with Bank One, as lender and agent, and Citicorp USA
Inc., as lender and collateral agent. The Unimast RCA was amended in 2001 to
include PCC. The Unimast RCA is for general corporate purposes, including
working capital needs and capital expenditures up to $55 million with a $3
million sub-limit for letters of credit ("LC"). The Unimast RCA expires on
November 24, 2003. Interest rates are based on either Bank One's current
corporate base rate or a Eurodollar rate plus 1.5%. Each of these rates can
fluctuate based upon performance. An aggregate commitment fee of .375% is
charged on the unused portion. The letter of credit fees are .75% for a
commercial LC and 1.5% 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, its subsidiaries,
and PCC. The terms of the Unimast RCA contain various restrictive covenants
limiting dividend payments, major acquisitions or other distribution of assets,
as defined in the Unimast RCA. Unimast must maintain certain financial covenants
associated with leverage, net worth, capital spending and interest coverage. At
December 31, 2001, Unimast was in compliance with all covenants. Borrowings
outstanding against the Unimast RCA at December 31, 2001 totaled $26.9 million.
Letters of credit outstanding under the Unimast RCA totaled $6.1 million at
December 31, 2001. Total funds available under the Unimast RCA at December 31,
2001 were $13.9 million. The Bankruptcy Filing of the WPC Group is not an event
of default under the Unimast RCA.
30
As described above the Handy & Harman and Unimast loan agreements
contain provisions restricting cash payments to WHX. The agreements allow the
payment of management fees, income taxes pursuant to tax sharing agreements,
loan repayments and related interest, and certain other expenses. In addition
dividends may be paid under certain conditions. At December 31, 2001 the net
assets of these subsidiaries amounted to $329.9 million, of which approximately
$0.6 million was not restricted as to the payment of dividends to WHX.
As of December 31, 2001, the WHX Group had consolidated cash and
short-term investments, net of related investment borrowings, of $141.8 million,
as compared to $74.1 million at December 31, 2000. The increase in cash and
short term investments in 2001 includes $105 million in proceeds from the sale
of Wheeling Downs, offset by the payment of WHX term loan interest in the amount
of $28.2 million and the payment of $15.9 million for the purchase and
retirement of $36.4 million principal amount of 10 1/2 % Senior Notes. During
the period January 1, 2002 through March 21, 2002, WHX utilized $50.6 million of
these funds to purchase $82.5 million aggregate of principal amount of Senior
Notes in the open market.
The Company is required to record income tax expense at statutory
rates. However, as a result of the termination of the Tax Sharing Agreement with
the WPC Group, the Company is able to utilize significant income tax loss carry
forwards to minimize its actual income tax payments, so long as the WPC Group
remains as a member of the WHX consolidated tax return.
Short-term liquidity is dependent, in large part, on cash on hand,
investments, precious metal values, and general economic conditions and their
effect on marketing demand. Long-term liquidity is dependent upon the WHX
Group's ability to sustain profitable operations and control costs during
periods of low demand or pricing in order to sustain positive cash flow. The WHX
Group satisfies its working capital requirements through cash on hand,
investments, borrowing availability under the Revolving Credit Facilities and
funds generated from operations. The WHX Group believes that such sources will
provide the WHX Group for the next twelve months with the funds required to
satisfy working capital and capital expenditure requirements. External factors,
such as economic conditions, could materially affect the WHX Group's results of
operations and financial condition.
As of December 31, 2001, the total of the WHX Groups future
contractual commitments, including the repayment of debt obligations is
summarized as follows:
Payments Due by Period
----------------------------------------------------------------------------------
Contractual
Obligations Total 2002 2003 - 2004 2005 - 2006 Thereafter
- ----------------------------------------------------------------------------------------------------------
Long Term Debt $ 456,509 $ 12,400 $ 88,460 $ 355,649 -
Operating Leases $ 38,276 $ 5,997 $ 10,532 $ 10,152 $ 11,595
- ----------------------------------------------------------------------------------------------------------
At December 31, 2001 there were 2.6 million shares of Series A
Convertible Preferred Stock and 2.9 million shares of Series B Convertible
Preferred Stock outstanding. Dividends on these shares are cumulative and are
payable quarterly in arrears, in an amount equal to $3.25 per annum per share of
Series A and $3.75 per annum per share of Series B. Pursuant to the terms of the
Supplemental Indenture to the Company's 10 1/2% Senior Notes, the Company is
prohibited from paying dividends on this Preferred Stock until after October 31,
2002, at the earliest and thereafter only in the event that the Company satisfy
certain conditions set forth in the Indenture. Presently, management believes
that it is not likely that the Company will be able to pay these dividends in
the foreseeable future. The holders of the Preferred Stock are eligible to elect
two directors to the Company's Board of Directors upon the Company's failure to
pay six quarterly dividend payments, whether or not consecutive. Dividends on
the Preferred Stock have not been paid since the dividend payment of October 31,
2000. Accordingly, following April 1, 2002, upon the non-payment of the
Preferred Stock Dividend, the holders of the Preferred Stock will have the right
to elect two directors to the Company's Board of Directors. At December 31, 2001
the Company has accrued $24.5 million for dividends in arrears.
In addition to the above obligations, certain customers and
suppliers of the H&H Precious Metal Segment choose to do business on a "pool"
basis. That is, to furnish precious metal to H&H for return in fabricated form
(customer metal) or for purchase from or return to the supplier. When the
customer's precious metal is returned in fabricated form, the customer is
charged a fabrication charge. The value of consigned precious metal is not
included in the Company's balance sheet. To the extent that the quantity of
customer and supplier precious metal, as well as precious metal owned by the
Company, does not meet operating needs, the Company can lease precious metal
through its Consignment Facility. At December 31, 2001, 2,700,000 ounces of
silver and 8,600 ounces of gold were leased to the Company under the Consignment
Facility.
31
WPC GROUP
The matters described under this caption, to the extent that they
relate to future events or expectations, may be significantly affected by the
Chapter 11 proceedings. Those proceedings will involve, or may result in,
various restrictions on the WPC Group's activities, limitations on financing,
the need to obtain Bankruptcy Court approval for various matters and uncertainty
as to relationships with vendors, suppliers, customers and others with whom the
WPC Group may conduct or seek to conduct business.
Net cash flow used by the WPC Group's operating, investing and
financing activities for the twelve months ended December 31, 2001 was $7.9
million. Working capital accounts (excluding cash, short-term borrowings and
current maturities of long term debt) provided $66.0 million of funds. Accounts
receivable decreased by $21.2 million. Inventories, valued principally by the
LIFO method for financial reporting purposes, totaled $173.1 million at December
31, 2001, a decrease of $36.7 million from December 31, 2000. Trade payables
increased by $7.3 million.
In 2001, $5.0 million was spent on capital improvements including
$0.8 million on environmental control projects. Continuous and substantial
capital and maintenance expenditures may be required to maintain operating
facilities, modernize finishing facilities to remain competitive and to comply
with environmental control requirements. It is anticipated that capital
expenditures will be minimized during the Chapter 11 proceedings until liquidity
is sufficient and stabilized.
On November 17, 2000, members of the WPC Group entered into a DIP
Credit Agreement to provide borrowings of up to $290 million to refinance
certain pre-petition obligations of the WPC Group, to provide working capital
for the WPC Group and for other general corporate purposes. The DIP Credit
Agreement includes (1) a $35 million senior secured term loan of which $34.4
million was outstanding at December 31, 2001. and (2) a Revolving Credit
Facility, as amended, of up to $175 million, based on available collateral. The
DIP Credit Agreement includes a $25 million sublimit for letters of credit. The
DIP Credit Agreement is secured by substantially all of the existing and
after-acquired assets, property and rights of the WPC Group (including, but not
limited to, cash, inventory, accounts receivable, general intangibles,
equipment, intellectual property, equity investments, owned real estate and
leaseholds), and the obligations thereunder are entitled to a super-priority
administrative claim in the Chapter 11 cases. The DIP Credit Facility expires on
the earlier of November 17, 2002 or the completion of a Plan of Reorganization.
WPC intends to have completed a Plan of Reorganization by November 16, 2002. If
a Plan of Reorganization is not completed by then, WPC will pursue an extension
of or a replacement of the current DIP Credit Facility. There can be no
guarantee that this will occur. Revolving credit interest rates are based on the
Citibank Base Rate plus 2.25% and/or Eurodollar rate plus 3%. The margin over
the prime rate and the Eurodollar rate fluctuates based upon availability
levels. The Term Loan interest rates are 13% payable in cash plus 3% payable in
cash or in kind. Borrowings outstanding under the DIP Credit Agreement at
December 31, 2001 included the $34.4 million term loan, $127.2 million in
revolving credit borrowings and approximately $2.8 million of letters of credit.
Borrowings under the DIP Credit Agreement were used to repay all obligations
under the WPSC Receivables Facility, amounting to approximately $105 million,
and to repay all obligations under WPSC's Revolving Credit Facility, amounting
to approximately $84.7 million. Upon repayment, the WPSC Revolving Credit
Facility and the Receivables Facility were terminated. In connection with the
Bankruptcy Filing, WHX had guaranteed $30 million of the term loan portion of
the DIP Credit Agreement.WHX subsequently purchased a $30 million participation
in the Term Loan instead of the guaranty.
At March 23, 2002, availability under the DIP Credit Facility was
$4.6 million.
In October 2001, WHX agreed to provide short-term loans in the
amount of $5.0 million and up to $5.0 million of other liquidity support
contingent upon completion of a MLA which would provide for temporary wage
reductions, staff reductions, the elimination of gainsharing and other
obligations and long-term changes to health benefits that would dramatically
reduce on-going costs. The MLA became effective October 31, 2001.
In January 2002,WPSC finalized a financial support plan which
included a $5 million loan from the state of West Virginia, a $7.2 loan from the
state of Ohio, $10 million in advance by the Unimast segment for future steel
purchases, a portion of which shall be delivered on or before March 31, 2002,
and additional wage and salary deferrals from WPSC union and salaried employees.
32
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with generally accepted accounting
principles. Preparation of these financial statements requires the Company to
make estimates and judgements that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to bad debts, inventories, intangibles, income taxes,
pensions and other post-retirement benefits, and contingencies and litigation.
Estimates are based on historical experience and various other assumptions that
are believed to be reasonable under the circumstances, the results of which form
the basis for making judgements about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
Financial Reporting Release No. 60, which was recently released by
the Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 to the Consolidated Financial Statements, included
elsewhere in this Form 10-K, includes a summary of the significant accounting
policies and methods used in the preparation of the Company's financial
statements. The following is a brief discussion of the more significant
accounting policies and methods used by the Company.
Principles of Consolidation
The consolidated financial statements include the accounts of all
subsidiary companies except for Wheeling-Pittsburgh Corporation and its
subsidiaries. On November 16, 2000, Wheeling-Pittsburgh Corporation ("WPC"), a
wholly owned subsidiary of WHX Corporation ("WHX"), and six of its subsidiaries
("WPC Group") filed petitions seeking reorganization under Chapter 11 of Title
11 of the United States Bankruptcy Code. (See Note 2 to the Consolidated
Financial Statements). As a result of the Bankruptcy Filing the Company has, as
of November 16, 2000, deconsolidated the balance sheet of its wholly owned
subsidiary WPC. Accordingly, the consolidated balance sheets at December 31,
2001 and 2000 do not include any of the assets or liabilities of WPC. The
consolidated statement of operations and the consolidated statement of cash
flows exclude the operating results of WPC for the periods after November 16,
2000.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in first-out ("LIFO") method for the Unimast segment and
precious metal inventories. The revaluation of H&H's precious metals inventory
at the time of acquisition created the potential for a lower of cost or market
non-cash charge, which would occur if market values fall below LIFO cost.
Non-precious metal inventory is evaluated for estimated excess and obsolescence
based upon assumptions about future demand and market conditions, and is
adjusted accordingly. If actual market conditions are less favorable than those
projected by the Company, additional write-downs may be required.
Intangibles and Amortization
The excess of purchase price over net assets acquired in business
combinations ("goodwill") is 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 goodwill. The
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and
other Intangible Assets." The Company will adopt the provisions of SFAS 142
effective January 1, 2002. As a result of the adoption of SFAS 142, the Company
will record a $44.0 million non-cash goodwill impairment charge related to the
H&H Wire Group in the first quarter of 2002. This charge will be shown as a
cumulative effect of an accounting change. The Company is taking this charge
because this Group's cash flow performance over the last several years has not
met expectations. The Company is still committed to this business and expects
improved performance from this Group in future periods as a result of management
changes, cost reductions, and improving economic conditions. However, based on
current cash flow projections, it is estimated that such improved performance
will not be sufficient to recover all of this Group's recorded goodwill.
33
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 either in net income or as an element of comprehensive income.
SFAS 133 is effective for fiscal years beginning after June 15, 2000. The
adoption of the standard on January 1, 2001 did not have a significant impact on
the reported results of operations or financial position.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements", as amended by SAB 101A and SAB 101B, which summarizes the
SEC staff's interpretations of generally accepted accounting principles related
to revenue recognition and classification. The interpretation did not have a
significant impact on the consolidated results of operations or financial
position and related disclosure requirements.
In July 2001, FASB issues SFAS 141 and 142, "Business Combinations"
("SFAS 141") and "Goodwill and Other Intangible Assets" ("SFAS 142"),
respectively. SFAS 141 supercedes Accounting Principles Board Opinion No. 16
("APB 16"), "Business Combinations." The most significant changes made by SFAS
141 are: (1) requiring that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001, (2) establishing specific
criteria for the recognition of intangible assets separately from goodwill, and
(3) requiring unallocated negative goodwill to be written off immediately as an
extraordinary gain, instead of being amortized.
SFAS 142 supercedes APB 17, "Intangible Assets". SFAS 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
acquisition (i.e., post-acquisition accounting). The provisions of SFAS 142 will
be effective for fiscal years beginning after December 15, 2001 and must be
adopted at the beginning of a fiscal year. The most significant changes made by
SFAS 142 are 1) goodwill and indefinite lived intangible assets will no longer
be amortized, (2) goodwill be will tested for impairment at least annually at
the reporting unit level, 3) intangible assets deemed to have an indefinite life
will be tested for impairment at least annually, and (4) the amortization period
of intangible assets with finite lives will no longer be limited to forty (40)
years.
The Company will adopt the provisions of SFAS 142 effective January
1, 2002. As a result of the adoption of SFAS 142, the Company will not record
amortization expense of approximately $8.9 million for existing goodwill for the
year ending December 31, 2002. The Company recorded amortization expense on this
goodwill through December 31, 2001. However, any intangible assets acquired or
goodwill arising from transactions after June 30, 2001 will be subject to the
amortization and non-amortization provisions of SFAS 141 and SFAS 142. The
Company will record a $44.0 million non-cash goodwill impairment charge related
to the H&H Wire Group in the first quarter of 2002. This charge will be shown as
a cumulative effect of an accounting change. The Company is taking this charge
because this Group's performance over the last several years has not met
expectations. The Company is still committed to this business and expects
improved performance from this Group in future periods as a result of management
changes, cost reductions, and improving economic conditions. However, based on
current cash flow projections, it is estimated that such improved performance
will not be sufficient to recover all of this Group's recorded goodwill.
In August 2001, the FASB issued Statement No. 143, "Accounting for
Asset Retirement Obligation", ("SFAS 143"). SFAS 143 requires that obligation
associated with the retirement of a tangible long-lived asset to be recorded as
a liability when those obligations are incurred, with the amount of the
liability initially measured at fair value. Upon initially recognizing a
liability for an asset-retirement obligation ("ARO"), an entity must capitalize
the cost by recognizing an increase in the carrying amount of the related
long-lived asset. Over time, the liability is accreted to its present value each
period, and the capitalized cost is depreciated over the useful life of the
related asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement.
SFAS 143 will be effective for the financial statement for fiscal years
beginning after June 15, 2002. WHX would be required to adopt the provisions of
SFAS 143 in fiscal 2003; however, SFAS 143 is not expected to have a significant
effect on WHX's financial statements.
In October 2001, the FASB issued Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets", ("SFAS 144"). SFAS 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. The statement also extends the reporting requirements to
report separately, as discontinued operations, components of
34
an entity that have either been disposed of or classified as held for sale. WHX
will adopt the provisions of SFAS 144 as of the beginning of fiscal 2002. Such
adoption is not expected to have a significant effect on WHX's financial
statements.
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, electricity,
precious metals, steel products and certain non-ferrous metals used as raw
material. To a lesser extent, the Company is exposed to the risk of price
fluctuation on coal, coke, and natural gas liquids. 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, 2001, the WHX Group held $9.5 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 2001 a hypothetical 10% decrease in the value of the equity trading
securities would have resulted in a $1.0 million unfavorable impact on pre-tax
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 5 to the Consolidated Financial Statements)
INTEREST RATE RISK
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.
At December 31, 2001, the Company's investment portfolio included
fixed income securities totaling $235.2 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 2001, the Company recognized realized and unrealized losses
totaling $11.5 million in connection with its fixed-income securities investment
portfolio as well as its common stock investments. 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 5 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, 2001, the Company's portfolio of long-term debt included
fixed-rate instruments. Accordingly, the fair value of such instruments may be
relatively sensitive to effects of interest rate fluctuations. In
35
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 interest rate swap agreements for
certain of its variable-rate debt. The swap agreements cover a notional amount
of $15.0 million and convert $15.0 million of its variable-rate debt to fixed
rate. The weighted-average fixed rate is 4.93%, with a termination date of
November 23, 2003.
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.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 and comprehensive income present fairly, in all material
respects, the financial position of WHX Corporation and its subsidiaries (the
"Company") at December 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001, in conformity with accounting principles generally accepted in the
United States of America. 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 our opinion.
As discussed in Note 2, on November 16, 2000, the Company's
wholly-owned subsidiary, Wheeling-Pittsburgh Corporation and Subsidiaries filed
for reorganization under Chapter 11 of the Federal Bankruptcy Code. The
bankruptcy filing has given rise to a number of uncertainties relating to
environmental obligations, pension and other post retirement benefit
obligations.
PricewaterhouseCoopers LLP
New York, New York
February 22, 2002
37
WHX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------------
2001 2000 1999
----------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE)
REVENUES:
Net sales $ 620,522 $ 1,745,459 $ 1,764,699
COST AND EXPENSES:
Cost of products sold, excluding depreciation 505,657 1,510,325 1,487,441
Depreciation and amortization 28,906 98,777 104,856
Selling, administrative and general expense 79,382 142,373 137,615
------------ --------------- --------------
613,945 1,751,475 1,729,912
Operating income (loss) 6,577 (6,016) 34,787
Interest expense on debt 48,905 86,222 87,851
Gain on sale on interest in Wheeling-Downs 88,517 - -
Other income (expense) 10,604 (15,207) 30,800
------------ --------------- --------------
INCOME (LOSS) BEFORE TAXES AND EXTRAORDINARY
ITEMS 56,793 (107,445) (22,264)
Tax provision (benefit) (31,971) 73,600 (6,430)
------------ --------------- --------------
Income (loss) before extraordinary items 88,764 (181,045) (15,834)
Extraordinary items-net of tax 12,357 - 896
------------ --------------- --------------
NET INCOME (LOSS) 101,121 (181,045) (14,938)
Dividend requirement for preferred stock 19,329 20,607 20,608
------------ --------------- --------------
Net income (loss) available to common stock $ 81,792 $ (201,652) $ (35,546)
============ =============== ==============
BASIC INCOME (LOSS) PER SHARE OF COMMON STOCK
Income (loss) before extraordinary item $ 4.63 $ (14.10) $ (2.30)
Extraordinary item-net of tax 0.82 - 0.06
------------ --------------- --------------
Net income (loss) per share $ 5.45 $ (14.10) $ (2.24)
============ =============== ==============
INCOME (LOSS) PER SHARE OF COMMON STOCK
-- ASSUMING DILUTION
Income (loss) before extraordinary item $ 2.82 $ (14.10) $ (2.30)
Extraordinary item-net of tax 0.39 - 0.06
------------ --------------- --------------
NET INCOME (LOSS) PER SHARE--ASSUMING DILUTION $ 3.21 $ (14.10) $ (2.24)
============ =============== ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
38
WHX CORPORATION
CONSOLIDATED BALANCE SHEETS YEAR ENDED DECEMBER 31,
-----------------------------------------
2001 2000
----------------- -----------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 7,875 $ 4,837
Short term investments 244,883 69,319
Trade receivables, less allowance for doubtful accounts
of $3,763 and $1,399 67,721 83,929
Inventories 114,835 150,269
Prepaid expenses and deferred charges 9,042 11,472
Due from WPC - 20,878
----------------- -----------------
Total current assets 444,356 340,704
Advances to WPC 8,369 -
Note receivable - WPC 31,005 -
Restricted cash - 33,000
Investment in associated companies 4,080 18,229
Property, plant and equipment, at cost less
accumulated depreciation and amortization 171,024 173,790
Intangibles, net of amortization 274,131 282,821
Prepaid pension asset 33,294 37,755
Deferred charges and other assets 18,764 27,217
----------------- -----------------
$ 985,023 $ 913,516
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 47,042 $ 46,417
Accrued liabilities 23,951 32,273
Short-term debt 110,946 6,000
Payroll and employee benefits 3,241 6,511
Federal, state and local taxes 1,241 1,362
Deferred income taxes - current 8,982 18,562
Due to WPC - 31,952
Long-term debt due in one year 2,150 929
----------------- -----------------
Total current liabilities 197,553 144,006
Long-term debt 454,359 504,983
Deferred income taxes - non current 3,435 21,289
Other employee benefit liabilities 8,309 8,404
Loss in excess of investment in WPC 39,374 39,783
Other liabilities 25,569 17,409
----------------- -----------------
728,599 735,874
----------------- -----------------
Redeemable common stock - 245 shares - 2,646
----------------- -----------------
Stockholders' Equity:
Preferred stock - $.10 par value; authorized 10,000
shares; issued and outstanding: 5,571 and 5,883 shares 557 589
Common stock - $.01 par value; authorized 60,000
shares; issued and outstanding: 16,070 and 14,590 shares 161 146
Accumulated other comprehensive income (loss) (2,268) (1,501)
Additional paid-in capital 555,899 555,479
Accumulated earnings (deficit) (297,925) (379,717)
----------------- -----------------
256,424 174,996
----------------- -----------------
$ 985,023 $ 913,516
================= =================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
39
WHX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-------------------------------------
2001 2000 1999
----------- ------------- ----------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 101,121 $(181,045) $ (14,938)
Items not affecting cash from operating activities:
Depreciation and amortization 33,179 101,539 104,856
Other postretirement benefits 108 (7,871) (8,065)
Extraordinary items, net of tax (12,358) -- (896)
Deferred income taxes (34,088) 70,643 (9,264)
(Gain) loss on asset dispositions 97 (65) 408
Gain on sale of interest in Wheeling Downs (88,517) -- --
Pension expense 4,461 2,090 4,341
Equity loss (income) in affiliated companies (2,016) (4,086) (4,343)
Decrease (increase) in working capital elements,
net of effect of acquisitions:
Trade receivables 18,919 4,383 (47,427)
Trade receivables sold -- 5,000 5,000
Inventories 36,778 57,376 26,214
Short term investments-trading (175,564) 590,037 51,638
Investment account borrowings 110,946 (495,542) 8,040
Other current assets 2,430 (9,253) (3,406)
Other current liabilities (13,281) 50,944 46,600
Other items-net 3,576 17,606 5,098
--------- --------- ---------
Net cash provided by (used in) operating activities (14,209) 201,756 163,856
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Guarantee of WPC DIP Term Note -- (33,000) --
Release of restricted cash (DIP) 33,000 -- --
Note receivable - WPC (30,453) -- --
Advance to WPC (8,369) -- --
Settlement Agreement - WPC (32,000) -- --
Purchase of note receivable -- (5,000) --
Plant additions and improvements (15,200) (128,544) (104,035)
Short term investments-available for sale -- (1,450) (14,971)
Vinyl Corp acquisition, net of cash acquired -- -- (12,827)
Other investments -- 131 3,212
Proceeds from sale of interest in Wheeling Downs 105,000 -- --
Proceeds from sales of assets 165 5,421 11,222
Dividends from affiliated companies -- 3,750 5,594
--------- --------- ---------
Net cash provided by (used in) investing activities 52,143 (158,692) (111,805)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt proceeds 48,381 -- --
Long-term debt retirement (83,259) (4,519) (44,438)
Letter of credit collateralization -- -- 8,229
Short-term borrowings (payments) -- 4,791 31,906
Common stock purchases -- -- (30,591)
Consent solicitation fees -- (8,538) --
Preferred stock dividends -- (20,607) (20,608)
Redemption of equity issues (18) (686) (209)
Dividends on minority interest in consolidated subsidiaries -- (1,731) (1,569)
--------- --------- ---------
Net cash used in financing activities (34,896) (31,290) (57,280)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,038 11,774 (5,229)
Cash and cash equivalents at beginning of year 4,837 10,775 16,004
Effect of deconsolidation of Wheeling-Pittsburgh Corporation -- (17,712) --
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,875 $ 4,837 $ 10,775
========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
40
WHX CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME
(Dollars and shares in thousands)
For the Years Ended December 31, 2001 2000 1999
-------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------
Common Stock
Balance at the beginning of year 14,590 $ 146 14,145 $ 141 17,545 $ 175
401(k) contribution 266 3 440 5 182 2
Retirement of treasury shares - - - - (3,594) (36)
Conversion of preferred shares 974 10 - - - -
Stock options excercised - - - - 11 -
EIP shares 240 2 5 - 1 -
-------------------------------------------------------------------------
Balance at the end of year 16,070 161 14,590 146 14,145 141
-------------------------------------------------------------------------
PREFERRED STOCK
Balance at the beginning of year 5,883 589 5,883 589 5,883 589
Conversion to common shares (312) (32) - - - -
-------------------------------------------------------------------------
Balance at the end of year 5,571 557 5,883 589 5,883 589
-------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
Balance at beginning of year (1,501) 945 5,472
Current period change (767) (2,446) (4,527)
------------- ------------- -------------
Balance at end of year (2,268) (1,501) 945
------------- ------------- -------------
RETAINED EARNINGS
Balance at beginning of year (379,717) (178,065) (142,519)
Net earnings (loss) 101,121 (181,045) (14,938)
Dividends for preferred stockholders (19,329) (20,607) (20,608)
------------- ------------- -------------
Balance at end of year (297,925) (379,717) (178,065)
------------- ------------- -------------
TREASURY STOCK
Balance at beginning of year - - -
Purchased - - (3,594) (30,591)
Retirement - - 3,594 30,591
------------- ------------- -------------
Balance at end of year - - -
------------- ------------- -------------
CAPITAL IN EXCESS OF PAR VALUE
Balance at beginning of year 555,479 553,861 582,795
EIP shares sold - 76 10
Stock options exercised - - 78
401(k) contribution 399 1,542 1,533
Preferred stock conversion 21 - -
Retirement of treasury stock - - (30,555)
------------- ------------- -------------
Balance at end of year 555,899 555,479 553,861
------------- ------------- -------------
TOTAL STOCKHOLDER'S EQUITY $ 256,424 $ 174,996 $ 377,471
============= ============= =============
NET EARNINGS (LOSS) $ 101,121 $(181,045) $ (14,938)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment (767) (997) (588)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) - (13,614) 5,220
Tax benefit (expense) - 4,765 (1,827)
Less: reclassification of gains to net earnings - 11,383 (11,280)
Tax benefit (expense) - (3,984) 3,948
------------- ------------- -------------
COMPREHENSIVE INCOME (LOSS) $ 100,354 $(183,492) $ (19,465)
============= ============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiary companies except for Wheeling-Pittsburgh Corporation and its
subsidiaries. On November 16, 2000, Wheeling-Pittsburgh Corporation ("WPC"), a
wholly owned subsidiary of WHX Corporation ("WHX"), and six of its subsidiaries
("the WPC Group") filed petitions seeking reorganization under Chapter 11 of
Title 11 of the United States Bankruptcy Code. (See Note 2 to the Consolidated
Financial Statements). As a result of the Bankruptcy Filing the Company has, as
of November 16, 2000, deconsolidated the balance sheet of its wholly owned
subsidiary WPC. Accordingly, the accompanying consolidated balance sheets at
December 31, 2001 and 2000 do not include any of the assets or liabilities of
WPC. The accompanying consolidated statement of operations and the consolidated
statement of cash flows exclude the operating results of WPC for the periods
after November 16, 2000.
WHX Corporation ("WHX") is a holding company that has been
structured to invest in and/or acquire a diverse group of businesses on a
decentralized basis. WHX's primary businesses currently are: Handy & Harman
("H&H"), a diversified manufacturing company whose strategic business segments
encompass, specialty wire & tubing, precious metals plating and fabrication, and
engineered materials; and Unimast Incorporated ("Unimast"), a leading
manufacturer of steel framing and other products for commercial and residential
construction. WHX's other business consists of Wheeling-Pittsburgh Corporation
("WPC") and its subsidiaries including Wheeling-Pittsburgh Steel Corporation
("WPSC" and together with WPC and its other subsidiaries, the "WPC Group"), a
vertically integrated manufacturer of value-added and flat rolled steel
products. WHX, together with all of its subsidiaries shall be referred to herein
as the "Company," and the Company and its subsidiaries other than the WPC Group
shall be referred to herein as the "WHX Group."
(See Note 15 to the Consolidated Financial Statements)
USE OF ESTIMATES
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 the
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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 estimated redemption amount
that is considered to approximate fair value. See Note 8 to the Consolidated
Financial Statements for a description of fair value of debt instruments.
REVENUE RECOGNITION
Revenue is recognized on the sale of product when the related goods
have been shipped and title has passed to the customer.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in first-out ("LIFO") method for the Unimast segment and
precious metal inventories. H&H's non-precious metals inventories are stated at
the lower of cost
42
(principally average) or market. For precious metals inventories no segregation
among raw materials, work in process and finished goods is practicable.
PROPERTY, PLANT AND EQUIPMENT
Depreciation of property, plant and equipment is provided
principally on the straight-line method over the estimated useful lives of the
assets which range as follows: machinery & equipment 3 - 20 years, buildings and
improvements 10 - 50 years. Interest cost is capitalized for qualifying assets
during the assets' acquisition period. Capitalized interest cost is amortized
over the life of the asset. Maintenance and repairs are charged to income and
renewals and betterments are capitalized. Profit or loss on dispositions is
credited or charged to income.
INTANGIBLES AND AMORTIZATION
The excess of purchase price over net assets acquired in business
combinations ("goodwill") is amortized on the straight-line method for periods
ranging from 15 to 40 years. At December 31, 2001 and 2000 Goodwill, net of
accumulated amortization, amounted to $272.4 million and $ 281.5 million,
respectively. 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 goodwill. The
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
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
Pursuant to SFAS 128, "Earnings per Share", 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.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances to
conform to current year presentation.
IMPACT OF 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
43
instruments to be reported at fair value on the balance sheet; depending on the
nature of the derivative instrument, changes in fair value will be recognized
either in net income or as an element of comprehensive income. Effective January
1, 2001, the Company adopted SFAS 133 and such adoption did not have a material
effect in the Company's financial statements.
In July 2001, FASB issues SFAS 141 and 142, "Business Combinations"
("SFAS 141") and "Goodwill and Other Intangible Assets" ("SFAS 142"),
respectively. SFAS 141 supercedes Accounting Principles Board Opinion No. 16
("APB 16"), "Business Combinations." The most significant changes made by SFAS
141 are: (1) requiring that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001, (2) establishing specific
criteria for the recognition of intangible assets separately from goodwill, and
(3) requiring unallocated negative goodwill to be written off immediately as an
extraordinary gain, instead of being amortized.
SFAS 142 supercedes APB 17, "Intangible Assets". SFAS 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
acquisition (i.e., post-acquisition accounting). The provisions of SFAS 142 will
be effective for fiscal years beginning after December 15, 2001 and must be
adopted at the beginning of a fiscal year. The most significant changes made by
SFAS 142 are 1) goodwill and indefinite lived intangible assets will no longer
be amortized, (2) goodwill be will tested for impairment at least annually at
the reporting unit level, 3) intangible assets deemed to have an indefinite life
will be tested for impairment at least annually, and (4) the amortization period
of intangible assets with finite lives will no longer be limited to forty (40)
years.
The Company will adopt the provisions of SFAS 142 effective January
1, 2002. As a result of the adoption of SFAS 142, the Company will not record
amortization expense of approximately $8.9 million for existing goodwill for the
year ending December 31, 2002. The Company recorded amortization expense on this
goodwill through December 31, 2001. However, any intangible assets acquired or
goodwill arising from transactions after June 30, 2001 will be subject to the
amortization and non-amortization provisions of SFAS 141 and SFAS 142. The
Company will record a $44.0 million non-cash goodwill impairment charge related
to the H&H Wire Group in the first quarter of 2002. This charge will be shown as
a cumulative effect of an accounting change. The Company is taking this charge
because this Group's performance over the last several years has not met
expectations. The Company is still committed to this business and expects
improved performance from this Group in future periods as a result of management
changes, cost reductions, and improving economic conditions. However, based on
current cash flow projections, it is estimated that such improved performance
will not be sufficient to recover all of this Group's recorded goodwill.
In August 2001, the FASB issued Statement No. 143, "Accounting for
Asset Retirement Obligations," ("SFAS 143"). SFAS 143 requires that obligations
associated with the retirement of a tangible long-lived asset to be recorded as
a liability when those obligations are incurred, with the amount of the
liability initially measured at fair value. Upon initially recognizing a
liability for an asset-retirement obligation ("ARO"), an entity must capitalize
the cost by recognizing an increase in the carrying value of the related
long-lived asset. Over time, the liability is accreted to its present value each
period, and the capitalized cost is depreciated over the useful life of the
related asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement.
SFAS 143 will be effective for the financial statements for fiscal years
beginning after June 15, 2002. WHX would be required to adopt the provisions of
SFAS 143 in fiscal 2003; however, SFAS 143 is not expected to have a significant
effect on WHX's financial statements.
In October 2001, the FASB issued Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," ("SFAS 144"). SFAS 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. The statement also extends the reporting requirements to
report separately, as discontinued operations, components of an entity that have
either been disposed of or classified as held for sale. WHX will adopt the
provisions of SFAS 144 as of the beginning of fiscal 2002. Such adoption is not
expected to have a significant effect on WHX's financial statements.
NOTE 2 - WPC GROUP BANKRUPTCY
On November 16, 2000, the WPC Group filed petitions for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Ohio. As a result, subsequent to the commencement of the
Bankruptcy Filing, the WPC Group sought and obtained several orders from the
Bankruptcy Court that were intended to enable the WPC Group to continue business
operations as debtors-in-possession. Since the Petition Date, the WPC Group's
management has been in the process of stabilizing their businesses and
evaluating their operations, while continuing to provide uninterrupted services
to its customers.
44
On November 17, 2000, the Bankruptcy Court granted the WPC Group's
motion to approve a $290 million Debtor in Possession Credit Agreement ("DIP
Credit Agreement") provided by Citibank, N.A., as initial issuing bank, Citicorp
U.S.A., Inc., as administrative agent, and the DIP Lenders. Pursuant to the DIP
Credit Agreement, Citibank, N.A. made term loan advances to the WPC Group up to
a maximum aggregate principal amount of $35 million. In addition, the DIP
Lenders agreed, subject to certain conditions, to provide the WPC Group with
revolving loans, swing loans and letter of credit accommodations in an aggregate
amount of up to $255 million. In January 2002, the WPC Group requested and
received a reduction in the revolving loans, swing loans and letter of credit
accommodations to a maximum aggregate amount of up to $175 million. In
connection with the Bankruptcy Filing, WHX had guaranteed $30 million of the
term loan portion of the DIP Credit Agreement ("Term Loan") and deposited in a
pledged asset account $33 million of funds in support of such guaranty.
Effective as of June 1, 2001, WHX purchased a participation interest comprising
an undivided interest in the Term Loan in the amount of $30 million, plus
interest accrued but not paid on such amount of the Term Loan through June 1,
2001. Concurrently with such transaction, WHX's guaranty of $30 million of the
Term Loan described above was terminated and the $33 million of funds previously
deposited in a pledged asset account in support of such guaranty were released
to WHX. WHX paid to Citibank $30.5 million of such deposited funds to purchase
WHX's participation interest in the Term Loan. WPC borrowings outstanding under
the DIP Credit Facility for revolving loans totaled $127.2 million and $123.9
million at December 31, 2001 and 2000, respectively. The weighted-average
interest rates on the DIP Credit Facility for revolving loans were 7.4% and
10.1% in 2001 and 2000, respectively. Term loans under the DIP Credit Facility
totaled $34.4 million and $35.1 million at December 31, 2001 and 2000,
respectively. At March 23, 2002, availability under the DIP Credit Facility was
$4.6 million. The DIP Credit Facility expires on the earlier of November 17,
2002 or the completion of a Plan of Reorganization. WPC intends to have
completed a Plan of Reorganization by November 16, 2002. If a Plan of
Reorganization is not completed by then, WPC will pursue an extension of or a
replacement of the current DIP Credit Facility. There can be no guarantee that
this will occur.
Although the WPC Group expects to file a Plan of Reorganization at
an appropriate time in the future, there can be no assurance at this time that a
Plan of Reorganization will be proposed by the WPC Group, approved or confirmed
by the Bankruptcy Court, or that such plan will be consummated. The WPC Group
currently has the exclusive right to file a Plan of Reorganization. The
exclusive filing period has been extended most recently until April 25, 2002 by
the Bankruptcy Court at the WPC Group's request, and while the WPC Group intends
to request extensions of the exclusivity period if necessary, there can be no
assurance that the Bankruptcy Court will grant future extensions. If the
exclusivity period were to expire or be terminated, other interested parties,
such as creditors of the WPC Group, would have the right to propose alternative
plans of reorganization.
During the period January 1, 2001 through December 31, 2001, the WPC
Group incurred a net loss of $172.2 million, which is not reflected in the
Company's December 31, 2001 consolidated results of operations.
At January 1, 2000, $136.8 million of the Company's net equity
represented its investment in the WPC Group. In addition to this investment,
WHX, on November 17, 2000, guaranteed $30 million of the WPC Group's
debtor-in-possession term loan. Such guaranty was terminated effective as of
June 1, 2001 concurrently with WHX's purchase of a participation interest in the
Term Loan as discussed above. The recognition of the WPC Group's net loss of
$176.6 million, in the year 2000, has eliminated the investment's carrying value
of $136.8 million. In November of 2000, WHX recorded a liability of $39.8
million representing the excess of the WPC Group's loss over the carrying amount
of the investment.
A Settlement and Release Agreement ("Settlement Agreement") by and
among WPSC, WPC, WHX, and certain affiliates of WPSC, WPC and WHX, received
approval of the United States Bankruptcy Court for the Northern District of Ohio
on May 24, 2001, was entered into on May 25, 2001, and became effective on May
29, 2001. Pursuant to the Settlement Agreement certain outstanding claims among
the parties thereto were resolved, including without limitation, all
inter-company receivables and payables between the WHX Group and the WPC Group.
The Settlement Agreement provided, in part, that the Settlement
Agreement would be effective upon the occurrence of each of the following
transactions, (i) the payment by WHX to WPC of $17 million; (ii) the exchange of
releases between the WPC Group and the WHX Group; (iii) a binding agreement by
WHX to purchase certain assets of Pittsburgh-Canfield Corporation ("PCC") for
$15 million, plus the assumption of certain trade payables, subject to certain
other terms and conditions; (iv) the termination of the Tax Sharing Agreements
between WHX and WPC; (v) the delivery by WHX of an agreement to the WPC Group
whereby WHX agreed not to charge or allocate any pension obligations, expenses
or charges to the WPC Group with respect to the WHX Pension Plan, subject to
certain limitations as provided therein, through and including the earlier of
the effective date of a plan or plans of reorganization and December 31, 2002;
(vi) the amendment of the DIP Credit Agreement as provided in the Settlement
Agreement; (vii) the execution by WPC Land Corporation of such
45
instruments as may be necessary to effect the transfer of title, to WPSC, of
certain properties specified in the Settlement reement; and (viii) the consent
by the lenders party to the DIP Credit Agreement to the transactions described
in the Settlement Agreement. Such transactions, other than the acquisition of
certain assets of Pittsburgh-Canfield Corporation, all occurred effective May
29, 2001. The sale of certain assets of Pittsburgh-Canfield Corporation closed
on June 29, 2001. The PCC agreement includes a one-year repurchase option for
the seller. The repurchase price is $15 million plus the sum of environmental
expenditures and capital expenditures made by the Company. In addition, the
repurchase price will be adjusted for any changes in working capital.
As a result of the total cash payments of $32 million to the WPC
Group by WHX, all intercompany receivables and liabilities (except for
commercial trade transactions), including the liability for redeemable common
stock, were settled. In addition, WHX recorded the fair value of the net assets
of PCC of $5.4 million.
On October 22, 2001, the Bankruptcy Court entered an order ("October
Order"), approving several transactions intended, among other things, to provide
the WPC Group with additional liquidity. As part of the October Order, the
Bankruptcy Court approved a Memorandum of Understanding by and among the
Company, Wheeling-Pittsburgh Corporation ("WPC"), Wheeling-Pittsburgh Steel
Corporation ("WPSC") and the United Steelworkers of America, AFL-CIO-CLC
("USWA"), pursuant to which the Company agreed to provide to WPSC (1) up to $5
million of secured loans and $5.0 million of liquidity support (part of which
consists of secured financing terms) during the period from the Order through
January 31, 2002, (2) if certain conditions are met, an additional $2 million of
secured loans (for an aggregate of $7 million) and the maintenance of the $5
million of liquidity support referred to above, during the period from February
1, 2002 through March 31, 2002, (the conditions were not met, accordingly the
additional $2.0 million in secured loans were not made), and (3) a $25 million
contribution to a new WPSC defined benefit pension plan contingent upon a
confirmed WPSC
Chapter 11 plan of reorganization. Through December 31, 2001 WHX had advanced
$5.0 million of the secured loans and up to $5.5 million of secured financing.
At December 31, 2001 the outstanding balance of these secured advances was $5.0
million and $3.4 million of liquidity support.
The October Order also approved a Supplemental Agreement among the
members of the WPC Group and the Company, under which all of the extensions of
credit referred to in the preceding paragraph are granted super-priority claim
status in WPSC's Chapter 11 case and are secured by a lien on substantially all
of the assets of WPSC, junior to the liens, security interests and
super-priority claims of the lenders to WPSC under the DIP Credit Agreement. The
Supplemental Agreement also provides, among other things, that the Company may
sell, transfer or dispose of the stock of WPC free from the automatic stay
imposed under the Bankruptcy Code, and under specified circumstances requires
WPC to support certain changes to the Company's pension plan.
Additionally, the October Order approved the terms of the Modified
Labor Agreement ("MLA") by and among WPC, WPSC and the USWA. The Company is not
a party to the MLA. The MLA modifies the current WPSC collective bargaining
agreement to provide for, among other things, immediate deferrals in wages and
certain changes in medical benefits in exchange for improvements in pension
benefits for hourly employees upon a confirmed WPSC Chapter 11 plan of
reorganization. The MLA is part of a comprehensive support arrangement that also
involves concessions from WPSC salaried employees, WPSC's vendors and other
constituencies in the Chapter 11 proceedings.
In January 2002, WPSC finalized a financial support plan which
included a $5 million loan from the state of West Virginia, a $7.2 million loan
from the state of Ohio, $10 million in advance by the Unimast segment for future
steel purchases, a portion of which shall be delivered on or before March 31,
2002, and additional wage and salary deferrals from WPSC union and salaried
employees.
Management of the Company cannot at this time determine with
certainty the ultimate outcome of the Chapter 11 proceedings; however it is
possible that the following outcomes could result:
o The WPC Group could reorganize, and its creditors could receive
a portion of their claims in cash or in stock of WPC or WPSC.
o The WPC Group could be sold in its entirety or segments could be
sold, and the proceeds from such sale(s) would be utilized to
satisfy creditor claims.
o The creditors could assume ownership of the WPC Group or WPSC
and continue to operate such businesses.
46
In each of the above possible outcomes, the WHX Group would have
little or no future ownership in or involvement with the WPC Group, and the WHX
Group future cash obligations to or on behalf of the WPC Group would be minimal
to none (other than the $25.0 million pension contribution referred to above).
It is also possible that none of the above outcomes would occur and the WPC
Group may shut down a number of their operations. According to the Company's
preliminary evaluation of potential pension obligations, if a partial shutdown
of the WPC Group's operations were to occur in the immediate future WHX's
liability for early retirement pension benefits could range from approximately
$80 million to $100 million. It is also possible that the WPC Group could cease
operations in their entirety and this liability would then be significantly
greater. However, management does not believe this occurrence is likely. Under
current pension law and regulations based on the Company's analysis of the
current funded status of the pension plan, if a partial shutdown were to occur
after January 1, 2002, the cash funding obligations related to such partial
shutdown would likely not begin until 2003 and would extend over several years.
Such cash funding obligations would have a material adverse impact on the
liquidity, financial position and capital resources of the Company. The
Company's funding obligation and the impact on the Company's liquidity,
financial position and capital resources could be substantially reduced or
eliminated if (1) a partial shutdown, if it occurs, were to occur at such a time
that the fair market value of the assets of the plan approximates or exceeds the
plan's liabilities (including the early retirement benefits), (2) a shutdown
were to occur gradually over several years or (3) the number of the WPC Group's
operations shut down were less than those assumed in estimating the
above-mentioned amounts.
In connection with past collective bargaining agreements by and
between the WPC Group and the United Steelworkers of America, AFL-CIO-CLC
("USWA"), the WPC Group is obligated to provide certain medical insurance, life
insurance, disability and surviving spouse retirement benefits to retired
employees and their dependents ("OPEB Obligations"). WHX is not a signatory to
any of these agreements. However, WHX has separately agreed to be contingently
liable for a portion of the OPEB Obligations. WHX's contingent obligation would
be triggered in the event that the WPC Group were to fail to satisfy its OPEB
Obligations. WHX's contingent obligation is limited to 25% of the Accumulated
Post-Retirement Benefit Obligation with respect to the WPC Group's employees and
retirees represented by the USWA. The total OPEB Obligation disclosed in the
Wheeling Pittsburgh Steel Corporation's December 31, 2001 Consolidated Financial
Statements amounted to $307.1 million.
WHX has estimated that approximately 85% of employees and retirees entitled to
such OPEB obligations are represented by the USWA.
WHX's contingent obligation exists only so long as (1) a majority of
the directors of WPSC or WPC are affiliated with WHX; (2) WHX controls the Board
of Directors of WPSC or WPC through appointment or election of a majority of
such directors; or (3) WHX, through other means, exercises a level of control
normally associated with (1) or (2) above.
NOTE 3 - PENSIONS, OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company maintains several qualified and non-qualified pension
plans and other postretirement benefit plans covering substantially all of its
employees. The Company's domestic pension and health care benefit and
significant defined contribution plans are discussed below. The Company's
foreign plans and other defined contribution plans are not significant
individually or in the aggregate.
PENSION PLANS
The Company's defined benefit plan, the WHX Pension Plan, covers
substantially all WHX, H&H and WPC employees. The WHX Pension Plan was
established in May 1998, as a result of the merger of the former Handy & Harman
plans, which covered substantially all H&H employees, and the WPC plan. The WPC
plan, covering most USWA represented employees, was created 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 assets of the Retirement Security Plan were merged into the
WPC plan as of December 1, 1997. Under the terms of the WHX Pension Plan, the
benefit formula and provisions for the WPC and H&H participants continued as
they were designed under each of the respective plans prior to the merger.
Pension benefits for the H&H participants included in the WHX
Pension Plan are based on years of services and the amount of compensation at
the time of retirement.
Pension benefits for the WPC participants include both defined
benefit and defined contribution features, since the plan includes the account
balances from the Retirement Security Plan. The gross benefit, before offsets,
is calculated based on
47
years of service and the current benefit multiplier under the plan. This gross
amount is then offset for the benefits payable from the Retirement Security Plan
and benefits payable under 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,
participants who are eligible for the WHX Pension Plan and maintain RSP account
balances, will normally receive benefits from the WHX Pension Plan. When these
participants become eligible for benefits under the Plan, their vested balances
in the RSP Plan become assets of the WHX Pension Plan. Aggregate account
balances held in trust in individual employees' accounts totaled $137.2 million
at December 31, 2001. Such individual account balances can only be utilized to
fund all or a portion of the respective individual's total pension benefit as
determined by the defined benefit plan's benefit formula. These assets can not
be utilized to fund any of the defined benefit plan's benefit obligation at
December 31, 2001.
The Company's funding policy is to contribute annually an amount
that satisfies the minimum funding standards of ERISA.
In 1998, WPC 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 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 a previously terminated defined benefit
pension plan. This supplemental plan is not funded.
The following table presents a reconciliation of beginning and ending balances
of the projected benefit obligation.
2001 2000
-------------- --------------
(IN THOUSANDS)
Benefit obligation at January 1 $ 304,485 $ 289,741
Service cost 6,142 5,511
Interest cost 22,447 21,869
Actuarial (gain)/loss 10,332 5,542
Benefits paid (25,771) (24,993)
Plan amendments - implementation (6,594) 990
Transfers from DC plans 3,052 5,825
-------------- --------------
Benefit obligation at December 31 $ 314,093 $ 304,485
============== ==============
48
The following table presents a reconciliation of beginning and ending balances
of the fair value of plan assets.
2001 2000
-------------- --------------
(IN THOUSANDS)
Fair value of plan assets at January 1 $ 315,631 $ 307,612
Actual returns on plan assets 18,865 27,188
Benefits paid (25,771) (24,993)
Transfers from DC plans 3,052 5,825
-------------- --------------
$ 311,777 $ 315,632
============== ==============
Funded status $ (2,316) $ 11,146
Unrecognized prior service cost 45,758 58,953
Unrecognized actuarial (gain)/loss (10,148) (32,347)
-------------- --------------
Net amount recognized $ 33,294 $ 37,752
============== ==============
The following table presents the components of net periodic pension cost.
2001 2000 1999
------------- ----------------- ----------------
(IN THOUSANDS)
Service cost $ 6,142 $ 5,511 $ 6,573
Interest cost 22,447 21,869 20,073
Expected return on plan assets (30,386) (29,729) (28,994)
Amortization of prior service cost 6,601 6,556 6,509
Recognized actuarial (gain)/loss (343) (1,623) -
------------- ----------------- ----------------
$ 4,461 $ 2,584 $ 4,161
============= ================= ================
The following table presents weighted-average assumptions at December 31,
2001 2000 1999
---------------- ----------------- ----------------
Discount rate 7.25% 7.75% 8.00%
Expected return on assets 10.00% 10.00% 10.00%
Rate of compensation increase 4.00% 4.00% 4.00%
49
The following table presents the amounts recognized in the Consolidated Balance
Sheet for the pension plan with accumulated benefit obligations in excess of
plan assets:
2001 2000
----------- -----------
(IN THOUSANDS)
Projected benefit obligation $ (953) $ (955)
Fair value of assets - -
----------- -----------
Funded status (953) (955)
Unrecognized prior service cost 168 183
Unrecognized loss 24 130
----------- -----------
$ (761) $ (642)
=========== ===========
401(K) PLANS
The WPC salaried employees participate in a 401(k) defined
contribution plan. WPC matches 50% of the employee's contribution, and through
the date of the WPC bankruptcy (November 16, 2000) such matching contribution
was made with shares of WHX common stock. The employer contribution is limited
to a maximum of 3% of an employee's salary. The amount of such contributions
charged to WPC operations for the period January 1 through November 16, 2000 and
the year ending December 31, 1999 were $1.1 million for each period.
Certain H&H employees participate in an H&H sponsored savings plan,
which qualifies under Section 401(k) of the Internal Revenue Code. This savings
plan allows eligible employees to contribute from 1% to 15% of their income on a
pretax basis. H&H matches 50% of the first 3% of the employee's contribution.
H&H's contributions are invested in shares of WHX common stock and become
immediately vested. The charge to operations for the Company's matching
contribution amounted to $597,000, $529,000 and $520,000 for the years ending
2001, 2000 and 1999, respectively.
The number of shares of the Company's common stock held by the
401(k) plans was 1,122,747; 882,867 and 452,769 at December 31, 2001, 2000 and
1999, respectively.
Substantially all of the salaried and hourly employees of the
Company's Unimast subsidiary participate in a 401(k) Incentive Savings Plan.
Unimast provides a matching contribution of 50% of each employee's voluntary
contribution up to 6% of the employee's salary. Additionally, Unimast may make
an annual discretionary contribution of up to 2% of an employee's salary.
Contributions charged to operations for this plan were $901,000, $781,000 and
$698,000 for the years ending December 31, 2001, 2000 and 1999, respectively.
OTHER POSTRETIREMENT BENEFITS
Certain retired employees of Handy & Harman are covered by
postretirement medical benefit plans. The benefits provided are for medical and
prescription drugs. Contributions from a majority of the participants are
required and for those retirees and spouses, the Company's payments are capped.
The following table presents a reconciliation of beginning and
ending balances of the Accumulated Other Postretirement Benefit Obligation
("APBO").
50
2001 2000
-------------- ----------------
(IN THOUSANDS)
APBO at January 1, $ 7,987 $ 277,170
Service cost 26 2,344
Interest cost 530 17,754
Actuarial (gain) loss (575) 4,042
Plan amendments - 428
Benefits paid (908) (17,862)
APBO of WPC plan on November 16, 2000 - (275,889)
-------------- ----------------
-------------- ----------------
APBO at December 31, $ 7,060 $ 7,987
============== ================
The above H&H other post-retirement benefit plans are unfunded.
As a result of the deconsolidation of the WPC Group, the APBO of the
WPC Group is excluded from the WHX Consolidated Financial Statements. See Note 2
to the Consolidated Financial Statements.
The following table presents the amounts recognized in the Consolidated Balance
Sheet as of December 31.
2001 2000
-------------- --------------
(IN THOUSANDS)
Funded status $ (7,060) $ (283,876)
Unrecognized prior service cost (credit) 251 (28,793)
Unrecognized actuarial gain (739) (81,828)
Funded status of WPC at November 16, 2000 - 386,736
-------------- --------------
Net amount recognized $ (7,548) $ (7,761)
============== ==============
The following table presents the components of net periodic benefit cost
2001 2000 (A) 1999
-------------- ---------------- ----------------
(IN THOUSANDS)
Service cost $ 26 $ 1,855 $ 2,650
Interest cost 530 17,753 19,396
Expected return on plan assets - - (6)
Amortization of prior service cost 178 (3,428) (3,309)
Amortization of net (gain) (39) - -
Recognized acturial gain - (6,282) (3,918)
-------------- ---------------- ----------------
Net periodic benefit cost $ 695 $ 9,898 $ 14,813
============== ================ ================
(a) Includes a pro rata portion of the annual WPC amounts to reflect such
amounts through November 16, 2000.
51
The following table presents the weighted-average assumptions at December 31,
2001 2000 1999
----------------- ------------------ ----------------
Discount rate 7.25% 7.75% 8.00%
Expected return on assets - - 8.00%
Health care cost trend rate 8.00% 9.00% 8.00%
The health care cost trend rate assumed to be 8% in 2001 and
gradually decreasing to 5% by the year 2004 and remain at that level thereafter.
NOTE 4 - INCOME TAXES
YEAR ENDED DECEMBER 31,
2001 2000 1999
---------------- ------------------ ----------------
(IN THOUSANDS)
INCOME TAXES BEFORE EXTRAORDINARY ITEMS
Current
Federal tax provision (benefit) $ - $ - $ (96)
State tax provision 885 2,521 3,055
Foreign tax provision (benefit) 771 436 (125)
---------------- ------------------ ----------------
Total income taxes current 1,656 2,957 2,834
---------------- ------------------ ----------------
Deferred
Federal tax provision (benefit) (33,627) 70,643 (9,264)
State tax provision - - -
---------------- ------------------ ----------------
Income tax provision (benefit) $ (31,971) $ 73,600 $ (6,430)
================ ================== ================
TOTAL INCOME TAXES
Current
Federal tax provision (benefit) $ - $ - $ (96)
State tax provision 885 2,521 3,055
Foreign tax provision (benefit) 771 436 (125)
---------------- ------------------ ----------------
1,656 2,957 2,834
---------------- ------------------ ----------------
Deferred
Federal tax provision (benefit) (26,973) 70,643 (8,782)
State tax provision - - -
---------------- ------------------ ----------------
Income tax provision (benefit) $ (25,317) $ 73,600 $ (5,948)
================ ================== ================
COMPONENTS OF TOTAL INCOME TAXES
Operations $ (31,971) $ 73,600 $ (6,430)
Extraordinary items 6,654 - 482
---------------- ------------------ ----------------
Income tax provision (benefit) $ (25,317) $ 73,600 $ (5,948)
================ ================== ================
Deferred income taxes result from temporary differences in the
financial basis and tax basis of assets and liabilities. The amounts shown on
the following table represent the total differences between the Company's
consolidated tax return basis of assets and liabilities and the basis for
financial reporting, and in 2000 includes the amounts relating to WPC. As a
result of the deconsolidation of WPC as of November 16, 2000, the deferred tax
assets, liabilities and valuation allowance relating to WPC are not recorded in
the consolidated balance sheet.
52
DEFERRED INCOME TAX SOURCES
2001 2000
------------------ ------------------
(IN MILLIONS)
ASSETS
Postretirement and postemployment employee benefits $ 2.7 $ 139.0
Operating loss carryforwards 24.7 153.2
Minimum tax credit carryforwards (indefinite carryforward) 0.8 18.9
Provision for expenses and losses - 21.4
Leasing activities - 18.1
State income taxes - 1.3
Miscellaneous other 1.0 4.8
------------------ ------------------
Subtotal 29.2 356.7
------------------ ------------------
Less: Amount relating to WPC - (341.6)
------------------ ------------------
Deferred Tax Assets $ 29.2 $ 15.1
================== ==================
LIABILITIES
Property plant and equipment $ (15.5) $ (151.5)
Inventory (9.0) (53.1)
Pension (11.7) (13.2)
State income taxes (3.0) (3.8)
Miscellaneous other - (2.7)
------------------ ------------------
Subtotal (39.2) (224.3)
------------------ ------------------
Less: Amount relating to WPC - 171.3
------------------ ------------------
Deferred Tax Liability (39.2) (53.0)
------------------ ------------------
Valuation Allowance (2.4) (172.2)
------------------ ------------------
Less: Amount relating to WPC - 170.3
------------------ ------------------
Valuation Allowance (2.4) (1.9)
------------------ ------------------
NET DEFERRED INCOME TAX ASSET (LIABILITY) $ (12.4) $ (39.8)
================== ==================
As a result of the Settlement Agreement (See Note 2 to the
Consolidated Financial Statements) with the WPC Group and the related
termination of the Tax Sharing Agreement, the Company is able to recognize a
benefit from net operating losses of $13.6 million which were previously fully
reserved. Net operating loss carryforwards of the WPC Group amounting to $413.2
million are not reflected in the above table as of December 31, 2001.
The WPC Group, for tax return purposes, is consolidated with WHX and
its other subsidiaries. At December 31, 2001, WHX has $476.9 million of net
operating tax loss carryforwards of which $413.2 million pertain to the WPC
Group operations and for which no benefit has been recognized in the
accompanying consolidated financial statements.
The WPC Group operating loss carryforwards expire between 2005 and
2021 and the tax credit carryforwards expire between 2002 and 2010. WHX can
utilize these operating loss and credit carryforwards to reduce future income
tax liabilities, so long as WPC remains a member of the WHX consolidated tax
return. However, management at the present time does not believe that any
benefit from these carryforwards will be realized, since the ultimate resolution
of the Bankruptcy Filing can not be determined.
During 2000, the Company adjusted its tax accounts, the most
significant of which related to the reversal of prior year provisions for taxes
that are deemed no longer required. The total adjustment amounted to $32.9
million of which $7.6 million was credited to goodwill and $25.3 million was
credited to income tax expense.
During 1999, the valuation allowance decreased $3.2 million due to
the expiration of tax credit carryovers and a change in judgment about the
realizability of net operating losses in future periods.
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.
53
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 pre-tax 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 2001,
2000 and 1999 were $0.9 million $3.3 million, and $3.5 million, respectively.
Federal tax returns have been examined by the Internal Revenue
Service ("IRS") through 1997. The statute of limitations has expired for years
through 1997. Management believes it has adequately provided for all taxes on
income.
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,
---------------------------------------------------------------
2001 2000 1999
---------------------------------------------------------------
(IN THOUSANDS)
Income (loss) before taxes and extraordinary item $ 56,793 $ (107,455) $ (22,264)
================== ===================== ====================
Tax provision (benefit) at statutory rate $ 19,878 $ (37,605) $ (7,792)
Increase (decrease) in tax due to:
Percentage depletion - (201) (530)
Equity earnings (89) (1,525) (1,300)
Goodwill amortization 2,289 2,530 2,375
Other permanent differences 1,339 - -
State income tax net of federal effect 575 1,639 1,986
Change in valuation allowance 500 133,823 (3,246)
Net effect of foreign tax rate 101 (582) 624
Benefit of current year losses of
non-consolidated subsidiary (WPC) (44,388) - -
Recognition of NOLs available due to
termination of WPC Tax Sharing Agreement (13,642) - -
Adjustment of prior year's tax - (25,288) 575
Other 1,466 809 878
------------------ --------------------- --------------------
Tax provision (benefit) $ (31,971) $ 73,600 $ (6,430)
================== ===================== ====================
54
NOTE 5 - SHORT TERM INVESTMENTS
The composition of the Company's short-term investments are as follows:
YEAR ENDED DECEMBER 31,
------------------------------------
2001 2000
--------------- ---------------
(IN THOUSANDS)
Trading Securities:
U. S. Treasury Securities $ 130,235 $ -
Reverse Repurchase Agreement 105,000 45,479
Equities 9,540 21,876
Other 108 1,964
--------------- ----------------
$ 244,883 $ 69,319
=============== ================
These investments are subject to price volatility associated with
any interest-bearing instrument. Fluctuations in general interest rates affect
the value of these investments.
Net unrealized holding gains and losses on trading securities held
at period end and included in other income for 2001 and 2000 were a loss of
$12.3 million and $24.3 million, respectively. At December 2001, the Company had
short-term margin borrowings of $110.9 million, related to the short-term
investments.
In 2000, the Company reclassified $19.6 million of
available-for-sale investments to the trading category and recorded a realized
loss upon the subsequent sale of $13.1 million. As a result of the
reclassification, the Company recorded a favorable reclassification adjustment
within other comprehensive income of $7.2 million, net of related income tax
benefit of $3.9 million.
NOTE 6 - INVENTORIES
YEAR ENDED DECEMBER 31,
-----------------------------------------
2001 2000
---------------- ----------------
(IN THOUSANDS)
Finished products $ 27,327 $ 29,255
In-process 19,457 24,566
Raw materials 33,011 36,453
Fine and fabricated precious metal in various stages of completion 36,027 61,671
---------------- ----------------
115,822 151,945
LIFO reserve (987) (1,676)
---------------- ----------------
$ 114,835 $ 150,269
================ ================
During 2001, 2000 and 1999, certain inventory quantities were
reduced, resulting in liquidations of LIFO inventories, the effect of which
increased (decreased) income by approximately, $(0.4) million, $(1.2) million
and $2.1 million in 2001, 2000 and 1999, respectively. The operating income for
2001 and 1999 includes a non-cash charge resulting from the lower of cost or
market adjustment to precious metal inventories in the amount of $3.3 and $2.0
million in 2001 and 1999, respectively.
Certain customers and suppliers of the H&H Precious Metal Segment
choose to do business on a "pool" basis. That is, to furnish precious metal to
H&H for return in fabricated form (customer metal) or for purchase from or
return to the supplier. When the customer's precious metal is returned in
fabricated form, the customer is charged a fabrication charge. The value of
consigned precious metal is not included in the Company's balance sheet. To the
extent that the quantity of customer and supplier precious metal, as well as
precious metal owned by the Company, does not meet operating needs, the Company
can lease precious metal through its Consignment Facility. At December 31, 2001,
2,700,000 ounces of silver and 8,600 ounces of gold were leased to the Company
under the Consignment Facility. The weighted-average consignment rates under the
Consignment Facility for gold were 2.9% at December 31, 2001 and for silver 5.9%
and 2.1%, per annum at December 31, 2001 and 2000, respectively, based on the
market value of the related leased precious metal.
55
The following table summarizes customer, supplier and leased
precious metal quantities:
YEAR ENDED DECEMBER 31
----------------------------------------
2001 2000
------------------- ------------------
Silver ounces:
Customer metal 1,382,000 853,000
Net suppliers - 476,000
Leased 2,700,000 2,000,000
------------------- ------------------
Total 4,082,000 3,329,000
=================== ==================
Gold ounces:
Customer metal 4,200 7,500
Leased 8,600 -
------------------- ------------------
Total 12,800 7,500
=================== ==================
Palladium ounces:
Customer metal 1,414 217
=================== ==================
Supplemental inventory information:
YEAR ENDED DECEMBER 31
----------------------------------------
2001 2000
------------------- ------------------
(IN THOUSANDS, EXCEPT PER OUNCE)
Precious metals stated at LIFO cost $ 33,739 $ 57,643
Market value per ounce:
Silver $ 4.650 $ 4.595
Gold $ 276.50 $ 270.80
Palladium $ 440.00 $ 970.00
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31
----------------------------------------
2001 2000
------------------- ------------------
(IN THOUSANDS)
Land $ 18,923 $ 18,667
Buildings, machinery and equipment 218,956 196,032
Construction in progress 2,752 9,539
------------------- ------------------
240,631 224,238
Accumulated depreciation and amortization 69,607 50,448
------------------- ------------------
$ 171,024 $ 173,790
=================== ==================
Depreciation expense for the years 2001, 2000, and 1999 was $20.1, $89.1, and
$96.0 million, respectively.
56
NOTE 8 - LONG-TERM DEBT
YEAR ENDED DECEMBER 31
--------------------------------
2001 2000
-------------- ---------------
(in thousands)
Senior Notes due 2005, 10 1/2% $ 245,059 $ 281,490
Handy & Harman Senior Secured Credit Facility 168,155 192,793
Unimast Revolving Credit Agreement 26,900 21,000
Other 16,395 16,629
-------------- ---------------
456,509 511,912
Less portion due within one year 2,150 6,929
-------------- ---------------
Total long-term debt $ 454,359 $ 504,983
============== ===============
The fair value of long-term debt at December 31, 2001 and 2000 was
$329,379 and $403,500, 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: 2002, $12,400; 2003, $44,200; 2004, $44,260; 2005, $270,059; 2006,
$85,590. The Company's revolving credit facilities gives the Company the ability
to classify current portions of long-term debt and other short-term borrowings
amounting to $10,250 and $9,595 as long-term debt as of December 31, 2001 and
December 31, 2000, respectively.
A summary of the financial agreements at December 31, 2001 follows:
WHX CORPORATION 10 1/2% SENIOR NOTES DUE 2005:
On April 7, 1998, WHX issued $350 million principal amount of 10
1/2% Senior Notes ("Notes"), which replaced privately placed notes of the same
amount. Interest on the Notes is payable semi-annually on April 15 and October
15 of each year, commencing October 15, 1998. The Notes mature on April 15,
2005.
The 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), the Company
will be required to make an offer to repurchase all or any part of each holder's
Notes at 101% of the principal amount thereof, plus accrued interest and
liquidated damages, if any, thereon to the date of repurchase.
The 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 Notes indenture, dated as of April 7, 1998 ("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 first quarter of 1999, the Company purchased and retired
$20.5 million aggregate principal amount of the Notes in the open market
resulting in an extraordinary gain of $0.9 million net of tax.
During the second quarter of 2001, the Company purchased and retired
$36.4 million aggregate principal amount of the Notes in the open market
resulting in an extraordinary gain of $12.4 million net of tax.
During the period January 1, 2002 through March 21, 2002, WHX
purchased and retired $82.5 million aggregate principal amount of Senior Notes
in the open market for $50.6 million, as of March 21, 2002.
On October 4, 2000, WHX successfully completed a solicitation of
consents from holders of the Notes to amend certain covenants and other
provisions of the Indenture. The amendments are set forth in the Supplemental
Indenture and provide, among other things, for amendments to certain covenants
which restrict the Company's ability to make restricted
57
payments, incur additional indebtedness, make permitted investments or utilize
proceeds from asset sales. The Supplemental Indenture also prohibits the payment
of dividends on the Company's preferred stock until October 1, 2002, and
thereafter only in the event such payments satisfy certain conditions set forth
in the Indenture, as amended by the Supplemental Indenture. In addition, the
amendments remove as events of default under the Indenture those relating to
defaults under any mortgage, indenture or instrument by, judgments against and
bankruptcy, insolvency and related filings and other events of WPC, or any of
its direct or indirect subsidiaries. Accordingly, the Bankruptcy Filing is not
an event of default under the Notes. In connection with the solicitation WHX
made a payment equal to 2% of the principal amount of the Notes ($20 in cash for
each $1,000 principal amount of Notes) to each holder of Notes whose consent was
received and accepted prior to the expiration date. Such payments amounted to
$5.5 million and will be amortized to interest expense over the remaining term
of the Notes.
HANDY & HARMAN SENIOR SECURED CREDIT FACILITY
On July 30, 1998, H&H entered into a $300 million Senior Secured
Credit facility ("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 Delayed Draw Term Loan Facility (now expired) (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, 2001 are (a) in the case of the Term A 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 cash
distributions that can be made to WHX. Certain financial covenants associated
with leverage, fixed charge coverage, capital spending and interest coverage
must be maintained. In 2001, H&H received capital contributions of $6.3 million
from WHX in order to remain in compliance with certain of these financial
covenants. Such funds were utilized to reduce H&H debt. At December 31, 2001,
H&H was in compliance with all covenants. In September 2000, H&H 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 was 6.75% percent,
effective October 1, 2000, with a termination date of September 30, 2001.
Borrowings outstanding under the Facilities at December 31, 2001 totaled $168.2
million. Letters of credit outstanding under the facilities totaled $14.7
million at December 31, 2001.
UNIMAST REVOLVING CREDIT AGREEMENT
On November 24, 1998, Unimast Incorporated ("Unimast") entered into
a Revolving Credit Agreement ("RCA") with Bank One, as lender and agent, and
Citicorp USA Inc., as lender and collateral agent. The Unimast RCA was amended
in 2001 to include PCC. The RCA is for general corporate purposes, including
working capital needs and capital expenditures up to $55 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 Bank One's current corporate base rate
or a Eurodollar rate plus 1.50%. Each of these rates can fluctuate based upon
performance. An aggregate commitment fee of .375% is charged on the unused
portion. The letter of credit fees are 0.75% for a commercial LC and 1.50% for a
standby LC. The commitment fees and the LC fees are all performance based.
Unimast, in connection with the Settlement Agreement discussed in
Note 2, borrowed $15 million under the RCA for the purchase of PCC.
Borrowings are secured primarily by 100% of the eligible inventory,
accounts receivable, and fixed assets of Unimast and its subsidiaries, and PCC.
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. At December 31, 2001, Unimast
was in compliance with all covenants. Borrowings outstanding against the RCA at
December 31, 2001 totaled $26.9 million. Letters of credit outstanding under the
RCA totaled $6.1 million at December 31, 2001.
RESTRICTED NET ASSETS OF SUBSIDIARIES
As described above the Handy & Harman and Unimast loan agreements
contain provisions restricting cash payments to WHX. The agreements allow the
payment of management fees, income taxes pursuant to tax sharing agreements,
loan repayments and related interest, and certain other expenses. In addition
dividends may be paid under certain conditions. At
58
December 31, 2001 the net assets of these subsidiaries amounted to $329.9
million, of which approximately $0.6 million was not restricted as to the
payment of dividends to WHX.
INTEREST COST
Aggregate interest costs on debt and amounts capitalized during the
three years ended December 31 are as follows:
2001 2000 1999
-------------- --------------- --------------
(IN THOUSANDS)
Aggregate interest expense $ 48,905 $ 91,175 $ 90,885
Less: Capitalized interest - 4,953 3,034
-------------- --------------- --------------
Interest expense $ 48,905 $ 86,222 $ 87,851
============== =============== ==============
Interest paid $ 45,751 $ 77,813 $ 89,006
============== =============== ==============
NOTE 9 - STOCKHOLDERS' EQUITY
The authorized capital stock of WHX consists of 60,000,000 shares of
Common Stock, $.01 par value, of which 16,071,007 shares were outstanding as of
December 31, 2001, and 10,000,000 shares of Preferred Stock, $.10 par value, of
which 2,614,226 shares of Series A Convertible Preferred Stock and 2,956,700
shares of Series B Convertible Preferred Stock were outstanding as of December
31, 2001. In 1999, the Company purchased 3,594,300 shares of Common Stock in
open market purchases. No additional shares were purchased during 2001 or 2000.
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 million. On October 4,
2000, pursuant to a solicitation of consents from holders of its 10 1/2% Senior
Notes, certain covenants and other provisions of the indebtedness were amended.
The Supplemental Indenture prohibits the payment of dividends on the Company's
preferred stock until October 1, 2002, and thereafter only in the event such
payments satisfy certain conditions set forth in the Indenture, as amended by
the Supplemental Indenture. Dividends on the shares of the Series A Convertible
Preferred Stock are cumulative and 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. The Company has accrued $10.6 million representing dividends in
arrears at December 31, 2001.
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 rate of
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 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 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. During 2001 and 1999, 293,599 and 175 shares respectively were
converted into Common Stock. There were no conversions in 2000.
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. On October
4, 2000, pursuant to a solicitation of consents from holders of its 10 1/2%
Senior Notes, certain covenants and other provisions of the indebtedness were
amended. The Supplemental Indenture prohibits the payment of dividends on the
Company's preferred stock until October 1, 2002, and thereafter only in the
event such payments satisfy certain conditions set forth in the Indenture, as
amended by the Supplemental Indenture. Dividends on the shares of the Series B
Convertible Preferred Stock, are cumulative, and 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. The Company has accrued $13.9 million
representing dividends in arrears at December 31, 2001.
59
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 rate of
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 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 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. During 2001, 18,400 shares were converted into Common Stock. There
were no conversions in 2000 and 1999.
REDEEMABLE COMMON STOCK
As of December 31, 2000 certain present and former employees of the
WPC Group hold, through an Employee Stock Ownership Plan ("ESOP"), 244,507
shares of common stock of WHX. These employees received such shares as part of
the 1991 Chapter 11 Plan of Reorganization in exchange for Series C preferred
shares of Wheeling-Pittsburgh Steel Corporation (WPC's predecessor company prior
to the 1990 bankruptcy). 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 shares 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. Management had estimated the liability for
future redemptions to be approximately $2.6 million. As a result of the
Settlement Agreement discussed in Note 2, the liability for redeemable common
shares was assumed by WPC, accordingly participants will sell their shares to
WPC. The ESOP held approximately 218,000 shares of Common Stock of WHX at
December 31, 2001.
2001 STOCK OPTION PLAN
The WHX Corporation 2001 Stock Option Plan ("2001 Plan"), is
intended to assist the Company in securing and retaining in the employ of the
Company (and any subsidiary to the Company) directors, officers, consultants,
advisors and employees by allowing them to participate in the ownership and the
development and financial success of the Company through the grant of incentive
and non-qualified options (collectively, the "Options"). 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 1,500,000 shares of Common Stock have been reserved
for issuance upon exercise of Options under the 2001 Plan. The 2001 Plan is
administered by a committee ("Committee") consisting of two or more non-employee
members of the Board of Directors. The term of Options granted under the 2001
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.
1991 STOCK OPTION PLAN
The WHX Corporation Stock Option Plan ("1991 Plan"), as amended, 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. In 2001, the 1991
Plan was amended. This amendment expanded the definition of persons eligible to
receive grants of options under the 1991 Plan to directors, officers,
consultants, advisors and employees of WHX 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 3,750,000 shares of Common Stock have 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 two non-employee members of the Board of Directors. The term of Options
granted under the 1991 Plan may not exceed 15 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
60
"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.
DIRECTORS OPTION PLANS
The 1993 Directors D&O Plan ("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 CORPORATION
On July 29, 1993 ("Approval Date"), the Board of Directors approved
the grant of options to WPN Corp. (See Note 11 - to the Consolidated Financial
Statements) to purchase 1,000,000 shares of Common Stock ("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.
A SUMMARY OF THE OPTION PLANS:
NUMBER OF OPTIONS
1991 D&O WPN 2001 OPTION PRICE WEIGHTED AVERAGE
PLAN PLAN GRANT PLAN RANGE OPTION PRICE
-------------- ---------------- -------------- --------------- ------------------ ---------------------
Balance 01/01/99 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 - $ 12.010
Granted 250,000 25,000 - - $6.85-$6.875 $ 6.873
Cancelled (131,441) - - - $8.75-$14.625 $ 11.690
-------------- ---------------- -------------- ---------------
Balance 12/31/00 2,847,836 561,666 2,000,000 - $ 11.910
Granted - - - 1,385,000 $1.63 $ 1.63
Cancelled (313,179) - - (30,000) $1.63-$16.625 $ 13.209
-------------- ---------------- -------------- ---------------
Balance 12/31/01 2,534,657 561,666 2,000,000 1,355,000 $ 9.534
============== ================ ============== ===============
Options outstanding at December 31, 2001, which are exercisable,
totaled 5,245,656 and have a weighted average option price of $10.96. Options
outstanding at December 31, 2001 had a weighted-average remaining life of 5.8
years.
61
The Company adopted SFAS No. 123, and elected to continue to account
for stock options, under the provisions of APB 25. Therefore, no compensation
costs have been recognized for the stock option plans in 2001, 2000 or 1999. Had
the Company elected to account for stock-based compensation under the provision
of SFAS No. 123 during 2001, the effect on net income would have been an
additional expense of $1.6 million, net of related income tax benefit of $0.8
million or $0.16 and $.08 per share of Common Stock after deduction of Preferred
Stock Dividends on a basic and diluted basis, respectively. During 2000, the
effect on net income would have been an additional expense of $1.7 million, net
of related income tax benefit of $1.2 million, or $.22 per share of common stock
after deduction of preferred stock dividends, on a basic and diluted basis.
During 1999, the effect on net income would have been an additional expense of
$2.9 million, net of related tax benefit of $1.6 million or $0.18 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
69.7% in 2001, 40.6% in 2000 and 53.2% in 1999; risk-free interest rate of 4.8%
in 2001, 6.7% in 2000 and 6.6% in 1999, an expected life of 5 years and a
dividend yield of zero.
EARNINGS PER SHARE
The computation of dilutive earnings per common share in 2001
assumes conversion of preferred stock and redeemable common stock. The
computation of basic earnings per common share is based upon the weighted
average number of shares of Common Stock outstanding. In 2000 and 1999, the
conversion of preferred stock, redeemable common stock and exercise of options
and warrants would have had an anti-dilutive effect. A reconciliation of the
income and shares used in the computation follows:
YEAR ENDED DECEMBER 31, 2001
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------------- -------------- ---------------
(DOLLARS AND SHARES IN THOUSANDS)
Income before extraordinary item $ 88,764
Less: Preferred stock dividends 19,329
-----------------
Basic EPS
Income available to common stockholders 69,435 15,011 $ 4.63
----------------- --------------- ---------------
Effect of Dilutive Securities
Convertible preferred stock 19,329 16,296
Redeemable common stock - 217
----------------- ---------------
Diluted EPS
Income available to common stockholders
plus assumed conversions $ 88,764 31,524 $ 2.82
================= =============== ===============
The assumed conversion of stock options would have an anti-dilutive effect on earnings per-share in 2001.
62
YEAR ENDED DECEMBER 31, 2000
INCOME (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------------- --------------- ---------------
(DOLLARS AND SHARES IN THOUSANDS)
Loss before extraordinary item $ (181,045)
Less: Preferred stock dividends 20,607
-----------------
Basic EPS and Diluted EPS
Loss available to common stockholders $ (201,652) 14,304 $ (14.10)
================= =============== ===============
The assumed conversion of stock options, preferred stock and
redeemable common stock would have an anti-dilutive effect on earnings per-share in 2000.
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 in 1999.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments:
Rent expense for the WHX Group in 2001, 2000, 1999 was $7.0 million,
$5.1 million and $4.4 million respectively. Operating lease and rental
commitments for future years are as follows (in thousands):
2002 $ 5,997
2003 5,323
2004 5,209
2005 5,276
2006 4,876
2007 and beyond 11,595
--------------------
$ 38,276
====================
63
HANDY & HARMAN
On or about April 3, 2000 a civil action was commenced under Title 3
of the United States Code ss.3729 et seq. (False Claims Act) entitled United
States of America, ex rel. Patricia Keehle v. Handy & Harman, Inc. (sic) and
Strandflex, a Division of Maryland Specialty Wire, Inc. ("Strandflex") (Civil
Action No. 5:99-CV-103). The substantive allegations in the complaint related to
the alleged improper testing and certification of certain wire rope manufactured
at the Strandflex plant during the period 1992-1999 and sold as MILSPEC wire.
The United States Attorney's office also conducted a criminal investigation
relating to this matter and Strandflex was a target of the criminal
investigation under title 18 of the United States Code ss.287 (Submitting False
Claims) with the focus of the investigation being whether wire rope sold to
government agencies, either directly or indirectly, was misrepresented by
Strandflex as meeting MILSPEC specifications. H&H entered into discussions with
the United States Attorney to seek a negotiated settlement of all criminal and
civil claims. Those discussions resulted in a settlement agreement dated May 24,
2001, pursuant to which all civil and criminal claims were resolved as follows:
Maryland Specialty Wire, Inc., Strandflex Division, made a total
civil payment of $1 million which amount represented civil damages as payment
for remediation and compensation and included $100,000 as restitution pursuant
to the Plea Agreement which related to 35 wire rope sales which took place
between 1994 and 1998;
Maryland Specialty Wire, Inc., Strandflex Division, paid a criminal
fine of $500,000 and $100,000 as restitution pursuant to the Plea Agreement.
There are no known incidents of any Strandflex wire rope failing and
causing personal or property damage in any application.
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") commenced on March 31, 1997 through the Company's
wholly-owned subsidiary, SB Acquisition Corp. ("Offer"). The Company previously
disclosed that the SEC intended to institute this proceeding. Specifically, the
Order Instituting Proceedings (the "Order") alleges that, in its initial form,
the Offer violated the "All Holders Rule," Rule 14d-10(a)(1) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), based on the
Company's inclusion of a "record holder condition" in the Offer. No shareholder
had tendered any shares at the time the condition was removed. The Order further
alleges that the Company violated Rules 14d-4(c) and 14d-6(d) under the Exchange
Act upon expiration of the Offer, by allegedly waiving material conditions to
the Offer without prior notice to shareholders and purchasing the approximately
10.6% of DCA's outstanding shares tendered pursuant to the offer. The SEC does
not claim that the Offer was intended to or in fact defrauded any investor.
The Order institutes proceedings to determine whether the SEC should
enter an order requiring the Company (a) to cease and desist from committing or
causing any future violation of the rules alleged to have been violated and (b)
to pay approximately $1.3 million in disgorgement of profits. The Company filed
an answer denying any violations and seeking dismissal of the proceeding. On
October 6, 2000, the initial decision of the Administrative Law Judge who heard
the case dismissed all charges against the Company, with the finding that the
Company had not violated the law. The Division of Enforcement has filed a
petition for the SEC to review the decision and a brief, but only as to the All
Holders Rule Claim. The Commission, however, has authority to review any issues
on its own accord. WHX has filed its opposition brief.
THE WHX GROUP GENERAL LITIGATION
The WHX Group 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. However, it is possible that
the ultimate resolution of such litigation matters and claims could have a
material adverse effect on quarterly or annual operating results when they are
resolved in future periods.
THE WPC GROUP GENERAL LITIGATION
The WPC Group is a party to various litigation matters including
general liability claims covered by insurance. Claims that are "pre-petition"
claims for Chapter 11 purposes will ultimately be handled in accordance with the
terms of a
64
confirmed Plan of Reorganization in Chapter 11 cases. In the opinion of
management, litigation claims are not expected to have a material adverse effect
on the WPC Group's results of operations or its ability to reorganize.
ENVIRONMENTAL MATTERS
WPC has been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act
("Superfund") or similar state statutes at several waste sites. The WPC Group is
subject to joint and several liability imposed by Superfund on potentially
responsible parties. Due to the technical and regulatory complexity of remedial
activities and the difficulties attendant to identifying potentially responsible
parties and allocating or determining liability among them, the WPC Group is
unable to reasonably estimate the ultimate cost of compliance with Superfund
Laws. The WPC Group 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 and $2.0 million. At several other
sites the WPC Group estimates costs of approximately $0.5 million. The WPC Group
is currently funding its share of remediation costs.
The WPC Group, 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 WPC
Group has incurred capital expenditures for environmental control projects
aggregating $0.8 million, $3.4 million and $7.7 million for 2001, 2000, and 1999
respectively. WPC anticipates spending approximately $19.5 million in the
aggregate on major environmental compliance projects through the year 2004,
estimated to be spent as follows: $9.7 million in 2002, $6.1 million in 2003,
and $3.7 million in 2004. However, due to the possibility of unanticipated
factual or regulatory developments and in light of limitations imposed by the
pending Chapter 11 cases, the amount and timing of future expenditures may vary
substantially from such estimates.
WPC's non-current accrued environmental liabilities totaled $19.0
million and $17.1 million at December 31, 2001 and December 31, 2000,
respectively. These accruals were initially determined by WPC, based on all
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 WPC has adequately provided for
remediation costs that might be incurred or penalties that might be imposed
under present environmental laws and regulations.
The Bankruptcy Code may distinguish between environmental
liabilities that represent pre-petition liabilities and those that represent
ongoing post-petition liabilities. Based on information currently available,
including the WPC Group's prior capital expenditures, anticipated capital
expenditures, consent agreements negotiated with Federal and State agencies and
information available to the WPC Group on pending judicial and administrative
proceedings, the WPC Group does not expect its environmental compliance,
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
results of operations of the WPC Group or on the WPC Group's ability to
reorganize. However, it is possible that litigation and environmental
contingencies could have a material effect on quarterly or annual operating
results when they are resolved in future periods. As further information comes
into the WPC Group's possession, it will continue to reassess such evaluations.
In the event the WPC Group is unable to fund these liabilities,
claims may be made against the WHX for payment of such liabilities.
NOTE 11 - 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 as amended,
and approved by a majority of the non-management 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 2001, 2000 and 1999. In addition, in
October 1999, the Board of Directors awarded WPN an additional bonus of $3.3
million 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.
65
The WPC Group is included in the Company's consolidated federal
income tax return. WHX and the WPC Group had entered into a tax sharing
agreement, dated July 26, 1994, which provided that the WPC Group would be paid
for any reduction in the combined consolidated federal income tax liability
resulting from the utilization or deemed utilization of deductions, losses and
credits whether from current or prior years which are attributable to WPC. The
Tax Sharing Agreement was terminated in 2001 as part of the Settlement
Agreement. As a result, WHX was able to recognize benefits from WPC's net
operating losses (See Note 4 to the Consolidated Financial Statements).
As part of the Settlement Agreement, WHX paid $32.0 million to the
WPC Group in 2001. As a result of the Settlement Agreement, among other things,
all intercompany receivables and liabilities were settled. In addition WHX
acquired the net assets of PCC from the WPC Group. The WPC Group participates in
the WHX defined benefit pension plan. As a result of the Settlement Agreement,
WHX may not charge any pension expense to the WPC Group with respect to the WHX
Pension Plan through December 31, 2002. As a result, WHX incurred non-cash
pension expense of approximately $15.0 million for the WPC Group. (See Note 2 to
the Consolidated Financial Statements). On June 1, 2001, WHX purchased from
Citibank a $30.5 million participation in the DIP credit agreement for the WPC
Group for which WHX receives interest at a rate of 13% per annum, paid monthly
and an additional 3.0% per annum payment in-kind.
As a result of the October Order, WHX provided the WPC Group with
$5.0 million in secured financing in 2001. In addition, WHX provided up to $5.0
million in liquidity support to the WPC Group. At December 31, 2001, the
outstanding balance of these secured advances was $5.0 million and $3.4 million
liquidity support.
On October 9, 2000 and November 14, 2000, WHX transferred precious
metal to WPC with a market value of $35.2 million and a tax basis of a
significantly lower amount. Such proceeds were applied to the WHX net liability
due to WPC. In connection with the precious metal transfer, WPC agreed to amend
the provisions of the tax sharing agreement relating to the utilization, by WHX
of WPC's net operating losses in an amount equal to the tax gain realized on the
sale of such metals. WPC immediately sold the precious metals in the open market
and received proceeds of $35.2 million.
See Note 2 to the Consolidated Financial Statements.
NOTE 12 - OTHER INCOME
YEAR ENDED DECEMBER 31,
2001 2000 1999
------------- --------------- --------------
(IN THOUSANDS)
Interest and investment income/(loss) $ (4,411) $ (17,198) $ 25,416
Wheeling-Downs 14,957 10,680 6,788
Minority interest expense - (2,171) (1,217)
WPC - (2,637) 318
Other, net 58 (3,881) (505)
------------- --------------- --------------
$ 10,604 $ (15,207) $ 30,800
============= =============== ==============
WHX Entertainment received management fees from Wheeling-Downs
Racing Association, Inc. of $12.9 million, $7.7 million and $6.8 million in the
years ended December 31, 2001, 2000 and 1999, respectively.
NOTE 13 - GAIN ON SALE OF INTEREST IN WHEELING-DOWNS RACING ASSOCIATION, INC.
In December 2001, WHX Entertainment sold its 50% interest in
Wheeling-Downs Racing Association, Inc. for $105.0 million, resulting in an
$88.5 million pre-tax gain.
66
NOTE 14 - EXTRAORDINARY ITEMS
YEAR ENDED DECEMBER 31,
2001 2000 1999
------------ --------------- ------------
(IN THOUSANDS)
Discount on early debt retirement $ 20,525 $ - $ 1,925
Unamortized debt issuance cost (592) - (547)
Unamortized consent fee (922) - -
Income tax effect (6,654) - (482)
------------ --------------- ------------
$ 12,357 $ - $ 896
============ =============== ============
In the second quarter of 2001, the Company purchased and retired
$36.4 million aggregate principal amount of 10 1/2% Senior Notes in the open
market resulting in a $12.4 million gain, net of tax.
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.
NOTE 15 - REPORTED SEGMENTS
In 2001, the Company increased its number of reportable segments by
dividing Handy & Harman into three segments. As a result of the bankruptcy
filing and deconsolidation of the WPC Group, as discussed in Note 2 to the
Consolidated Financial Statements, the H&H business segments have become more
significant to the operations of the Company. The Company now has four
reportable segments: (1) H&H Precious Metal. This segment manufactures and sells
precious metal products and electroplated material, containing silver, gold, and
palladium in combination with base metals for use in a wide variety of
industrial applications; (2) H&H Wire & Tubing. This segment manufactures and
sells wire, cable and tubing products and fabrications primarily from stainless
steel, carbon steel and specialty alloys, for use in a wide variety of
industrial applications; (3) H&H Engineered Materials. This segment manufactures
specialty roofing and construction fasteners and products for gas, electricity
and water distribution using steel and plastic, which are sold to the
construction, and natural gas and water distribution industries; (4) Unimast, a
manufacturer of steel framing and other products for commercial and residential
construction. The results of operations of PCC are included in the Unimast
segment, beginning July 1, 2001. Operating results for the WPC Group are
included in the year 2000 figures for the periods before the deconsolidation,
effective November 16, 2000. The WPC Group is a vertically integrated
manufacturer of value-added and flat rolled steel products.
Management reviews operating income to evaluate segment performance.
Operating income for the reportable segment excludes unallocated general
corporate expenses (including pension expense in 2001) and goodwill
amortization. Other income and expense, and income taxes are not presented by
segment since they are excluded from the measure of segment profitability
reviewed by the Company's management.
For the periods presented, intersegment sales and transfers were
conducted at arm's length. Goodwill amortization is primarily related to the H&H
segments.
67
The following table presents information about reported segments for the years
ending December 31:
(in thousands)
--------------------- ---------------------- ----------------------
2001 2000 1999
--------------------- ---------------------- ----------------------
Revenue
H&H Precious Metal $ 168,308 $ 237,426 $ 233,695
H&H Wire & Tubing 133,621 158,008 158,948
H&H Engineered Materials 74,333 73,412 75,696
Unimast 244,260 239,276 226,993
--------------------- ---------------------- ----------------------
Sub total 620,522 708,122 695,332
WPC Group - 1,050,590 1,117,744
--------------------- ---------------------- ----------------------
Total segment revenue 620,522 1,758,712 1,813,076
Intersegment revenue - (13,253) (48,377)
--------------------- ---------------------- ----------------------
Consolidated revenue $ 620,522 $ 1,745,459 $ 1,764,699
===================== ====================== ======================
Segment operating income
H&H Precious Metal $ 7,982 $ 22,129 $ 22,747
H&H Wire & Tubing 3,407 13,862 15,737
H&H Engineered Materials 6,285 7,698 9,413
Unimast 14,239 15,926 19,499
--------------------- ---------------------- ----------------------
Sub total 31,913 59,615 67,396
WPC Group - (50,035) (17,052)
--------------------- ---------------------- ----------------------
31,913 9,580 50,344
Unallocated corporate expenses 16,457 6,154 6,872
Goodwill amortization 8,879 9,442 8,685
--------------------- ---------------------- ----------------------
Operating income 6,577 (6,016) 34,787
Interest expense 48,905 86,222 87,851
Gain on sale of Wheeling Downs 88,517 - -
Other income (expense) 10,604 (15,207) 30,800
--------------------- ---------------------- ----------------------
Income (loss) before taxes and extraordinary item 56,793 (107,445) (22,264)
Income tax expense (benefit) (31,971) 73,600 (6,430)
--------------------- ---------------------- ----------------------
Income (loss) before extraordinary item 88,764 (181,045) (15,834)
Extraordinary item-net of tax 12,357 - 896
--------------------- ---------------------- ----------------------
Net income (loss) $ 101,121 $ (181,045) $ (14,938)
===================== ====================== ======================
68
The following table presents revenue and long-lived asset
information by geographic area as of and for the years ended December 31:
GEOGRAPHIC INFORMATION
REVENUE LONG-LIVED ASSETS
2001 2000 1999 2001 2000 1999
-------------- ---------------- --------------- --------------- -------------- -------------
United States $ 597,115 $ 1,711,191 $ 1,738,740 $ 161,334 $ 192,019 $ 878,692
Foreign 23,407 34,268 25,959 13,770 14,025 18,299
-------------- ---------------- --------------- --------------- -------------- -------------
$ 620,522 $ 1,745,459 $ 1,764,699 $ 175,104 $ 206,044 $ 896,991
============== ================ =============== =============== ============== =============
Foreign revenue is based on the country in which the legal
subsidiary is domiciled. Revenue from no single foreign country was material to
the consolidated revenues of the Company.
(a) Year 2000 information for WPC includes income statement
and capital expenditure related information for the
period January 1, through November 16; balance sheet
information has not been included due to the
deconsolidation of WPC as of November 16, 2000.
NOTE 16 - QUARTERLY INFORMATION (UNAUDITED)
Financial results by quarter for the two fiscal years ended
December 31, 2001 and 2000 are as follows:
BASIC
EARNINGS
(LOSS) BASIC DILUTED
PER SHARE EARNINGS EARNINGS
BEFORE (LOSS) (LOSS)
OPERATING EXTRA NET EXTRA PER SHARE PER SHARE
NET INCOME ORDINARY INCOME ORDINARY ON NET ON NET
SALES (LOSS) INCOME (LOSS) ITEM INCOME INCOME
---------- ------------- --------------- -------------- --------------- -------------- --------------
(IN THOUSANDS - EXCEPT PER SHARE)
2001:
1st Quarter $ 156,071 $ 556 $ - $ (10,194) $ (1.05) $ (1.05) $ (1.05)
2nd Quarter 162,789 1,542 12,357 7,783 (0.65) 0.18 0.18
3rd Quarter 161,357 4,467 - (4,473) (0.61) (0.61) (0.61)
4th Quarter 140,305 12 - 108,005 (a) 6.71 6.71 3.42
2000:
1st Quarter $ 467,743 $ 13,931 $ - $ (6,699) $ (0.84) $ (0.84) $ (0.84)
2nd Quarter 486,779 17,463 - 36,262 (c) 2.19 2.19 1.17
3rd Quarter 459,889 (5,455) - (21,115) (1.84) (1.84) (1.84)
4th Quarter (b) 331,048 (31,955) - (189,493)(d) (13.55) (13.55) (13.55)
(a) Includes $88,517 gain on sale of interest in Wheeling-Downs Racing Association, Inc.
(b) Includes results of the WPC Group for the period October 1, 2000 through November 16, 2000.
(c) Includes $38,000 relating to the reversal of prior year provisions for taxes no longer required
(d) Includes $133,800 tax charge relating to the recognition of a valuation allowance of the net deferred tax assets of WPC.
69
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.
NOTE 17 - SUBSEQUENT EVENT
On January 20, 2002, a major plating facility, within the
H&H Precious Metal Segment, Sumco Inc., located in Indianapolis, IN had severe
fire damage that caused the temporary closure of the facility. The Company
believes it has adequate insurance for both the physical property damage and
business interruption. Insurance progress payments of $1.0 million have been
received as of March 1, 2002. Partial resumption of operations occurred on
February 11, 2002 and repairs to the building, its infrastructure and
replacement of machinery and equipment is continuing. Sumco Inc. will resume
complete operations at the facility as soon as reasonably possible.
70
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES NOT APPLICABLE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required under this item is incorporated by
reference to the Company's Proxy Statement for the 2002 Annual Meeting of
Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated by
reference to the Company's Proxy Statement for the 2002 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated by
reference to the Company's Proxy Statement for the 2002 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated by
reference to the Company's Proxy Statement for the 2002 Annual Meeting of
Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 3. EXHIBITS
2.1 Confirmation Order of the United States Bankruptcy Court
for the Western District of Pennsylvania, dated December
18, 1990, containing the Amended Joint Plan of
Reorganization of Wheeling-Pittsburgh Steel Corporation,
dated October 18, 1990, as modified and approved--
Incorporated herein by reference to Exhibit 2.1 to WPC's
Form 8-K filed December 28, 1990.
2.2 Form of Plan and Agreement of Merger, dated as of July
26, 1994 among WPC, WHX and WHEELING-PITTSBURGH STEEL
CORPORATION Merger Co.-- Incorporated herein by
reference to Exhibit 2.2. to Company's Form S-4
Registration Statement (No. 33-53591).
3.1 Certificate of Incorporation of the Company--
Incorporated herein by reference to Exhibit 3.2 to the
Company's Form S-4 Registration Statement (No.
33-53591).
3.2 Certificate of Designations filed with the Delaware
Secretary of State on September 22, 1994 - -
Incorporated herein by reference to Exhibit 4.3 to the
Company's Form S-3 Registration Statement (No.
33-54831).
3.3 Certificate of Amendment to Certificate of Incorporation
filed with the Delaware Secretary of State on January
23, 1997.
71
3.3 Certificate of Amendment to Certificate of Incorporation
filed with the Delaware Secretary of State on January
23, 1997 - Incorporated herein by reference to Exhibit
99.2 to the Form 8-K filed November 11, 1999.
3.5 Amended and Restated By-Laws of the Company -
Incorporated herein by reference to Exhibit 99.2 to the
Form 8-K filed November 11, 1999.
4.1 Indenture ("Senior Note Indenture"), between WPC and
Bank One, Columbus, NA, as Trustee-- Incorporated herein
by reference to Exhibit 4.1 to WPC's Form S-4
Registration Statement (No. 333-43867).
4.2 Term Loan Agreement dated as of November 20, 1997
between Wheeling-Pittsburgh Corporation and DLJ Capital
Funding, Inc., as syndication agent, and the lenders
party thereto-- Incorporated herein by reference to
Exhibit 4.2 to the 1997 Form 10-K.
4.3 Amendment No. 1 to Term Loan Agreement dated as of
December 31, 1997 between Wheeling-Pittsburgh
Corporation and DLJ Capital Funding, Inc., as
syndication agent, and the Lenders party thereto--
Incorporated herein by reference to Exhibit 4.3 to the
1997 Form 10-K.
4.4 Debtor in Possession Credit Agreement dated as of
November 17, 2000 among Wheeling-Pittsburgh Corporation,
Wheeling-Pittsburgh Steel Corporation, W-P Steel Venture
Corporation, Consumers Mining Company, W-P Coal Company,
Mingo Oxygen Company, Monessen Southwestern Railway
Company, Wheeling-Empire Company and Pittsburgh-Canfield
Corporation, the lenders party thereto and Citibank,
N.A. as initial issuing bank and Citicorp USA, Inc., as
agent.
4.5 Credit Agreement dated as of July 30, 1998 among Handy &
Harman, Handy & Harman of Canada, Limited, Handy &
Harman Europe Limited, Rigby-Maryland (Stainless)
Limited and Indiana Tube Danmark A/S and the Initial
Lenders, Initial Issuing Banks and Swing Line Bank named
therein and Citicorp USA, Inc. as collateral agent and
administrative agent. - Incorporated herein by reference
to Exhibit 4.11 to the 1998 Form 10-K.
10.1 Form of Key Employee Deferred Compensation
Agreement--Incorporated herein by reference to Exhibit
10.1 to the 1990 10-K.
10.2 Cooperation Agreement dated February 7, 1984 between the
Company and Nisshin Steel Co., Ltd. --Incorporated
herein by reference to Exhibit 10.24 to the Company's
Form S-1 Registration Statement No. 2-89295 as filed
with the Securities and Exchange Commission on February
7, 1984.
10.3 Close Corporation and Shareholder's Agreement effective
as of March 24, 1994, by and among Dong Yang Tinplate
America Corp., WPC, Nittetsu Shoji American, Inc. and
Ohio Coatings Company.
10.4 Second Amended and Restated Shareholders Agreement dated
as of November 12, 1990 between the Company and Nisshin
Steel Co. Ltd.-- Incorporated herein by reference to
Exhibit 10.9 to the 1990 10-K.
10.5 Management Agreement dated as of January 3, 1991 between
the Company and WPN Corp. --Incorporated herein by
reference to Exhibit 10.11 to the 1990 10-K.
10.6 Amendment No. 1 to Management Agreement dated as of
January 1, 1993 between the Company and WPN Corp.--
Incorporated herein by reference to Exhibit 10.8 to the
Company's Form S-2 Registration Statement filed February
23, 1993 (the "February Form S-2"). 10.7 Amendment No. 2
to Management Agreement dated as of April 11, 1994
between the Company and WPN Corp.--Incorporated herein
by reference to Exhibit 10.9 to the 1994 Form 10-K.
10.8 Amendment No. 3 to Management Agreement dated as of
April 1, 1996 between the Company and WPN Corporation --
Incorporated herein by reference to Exhibit 10.9 to the
1996 Form 10-K.
72
10.9 Amendment No. 4 to Management Agreement dated as of
April 13, 1998 between the Company and WPN Corporation--
Incorporated herein by reference to Exhibit 10.9 to the
1998 Form 10-K.
10.10 Amended and Restated 1991 Incentive and Nonqualified
Stock Option Plan - Incorporated herein by reference to
Exhibit 4.1 to WHX's Form S-8 filed July 9, 2001.
10.11 1993 Directors and Non-Employee Officers Stock Option
Plan-- Incorporated herein by reference to Exhibit 4.D
to WPC's Form S-8 filed April 8, 1994.
10.12 1997 Directors Stock Option Plan-- Incorporated herein
by reference to Exhibit 10.11 to the 1997 Form 10-K.
10.13 2001 Stock Option Plan - Incorporated herein by
reference to Exhibit 4.2 to WHX's Form S-8 filed July 9,
2001.
10.14 WPN Corp. Stock Option Grant Letter dated July 29,
1993-- Incorporated herein by reference to Exhibit 10.13
to the 1998 Form 10-K.
10.15 WPN Corp. Stock Option Grant Letter dated August 4,
1997-- Incorporated herein by reference to Exhibit 10.12
to the 1997 Form 10-K.
10.16 Agreement by and between Handy & Harman and Arnold Nance
dated May 1, 1998 (as amended by Amendment No. 1 to
Employment Agreement dated December 21, 1998)--
Incorporated herein by reference to Exhibit 10.16 to the
1998 Form 10-K.
10.17 Agreement dated as of April 23, 1998 by and between the
Company and James G. Bradley --Incorporated herein by
reference to Exhibit 10.17 to the 1998 Form 10-K.
10.18 Agreement dated as of April 17, 1998 by and between the
Company and Robert D. LeBlanc. Incorporated herein by
reference to Exhibit 10.18 to the 1998 Form 10-K.
10.19 Amended and Restated Agreement dated as of December 24,
1998 by and between the Company and Paul J. Mooney.-
Incorporated herein by reference to Exhibit 10.19 to the
1998 Form 10-K.
0.21 Settlement and Release Agreement, dated as of May 25,
2001, by and among Wheeling- Pittsburgh Steel
Corporation and Wheeling-Pittsburgh Corporation, WHX
Corporation and certain affiliates of WPSC, WPC and WHX
as specified on the signature pages thereto -
Incorporated herein by reference to Exhibit 99.1 to the
Form 8-K filed May 30, 2001.
21.1 Subsidiaries of Registrant - Incorporated herein by
reference to Exhibit 21.1 to the 1999 Form 10-K.
*23.1 Consent of PricewaterhouseCoopers LLP
(b) Financial Statements:
1. Audited Financial Statements of WHX Corporation (Parent Only).
2. Audited Financial Statements of Wheeling-Pittsburgh Corporation and Subsidiaries.
(c) Reports on Form 8-K Filed:
November 19, 2001
December 10, 2001
December 17, 2001
December 20, 2001
December 21, 2001
* - filed herewith.
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has signed this report by the
undersigned, thereunto duly authorized in the City of New York, State of New
York on March 28, 2002.
WHX CORPORATION
By /s/ Robert D. LeBlanc Date March 28, 2002
------------------------------------------------
Robert D. LeBlanc, Executive Vice President
of WHX Corporation and President and Chief
Executive Officer of Handy & Harman
POWER OF ATTORNEY WHX Corporation and each of the undersigned do
hereby appoint Ronald LaBow and Marvin Olshan, and each of them severally, its
or his true and lawful attorney to execute on behalf of WHX Corporation and the
undersigned any and all amendments to this Annual Report on Form 10-K and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission; each of such attorneys
shall have the power to act hereunder with or without the other.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By /s/ Robert K. Hynes March 28, 2002
--------------------------------------------------------- ----------------------------------
Robert K. Hynes, Vice President - Finance Date
(Principal Accounting Officer)
By /s/ Ronald LaBow March 28, 2002
--------------------------------------------------------- ----------------------------------
Ronald LaBow, Chairman of the Board Date
By /s/ Neil D. Arnold March 28, 2002
--------------------------------------------------------- ----------------------------------
Neil D. Arnold, Vice Chairman Date
By /s/ Robert A. Davidow March 28, 2002
--------------------------------------------------------- ----------------------------------
Robert A. Davidow, Director Date
By /s/ William Goldsmith March 28, 2002
--------------------------------------------------------- ----------------------------------
William Goldsmith, Director Date
By /s/ Marvin L. Olshan March 28, 2002
--------------------------------------------------------- ----------------------------------
Marvin L. Olshan, Director Date
By /s/ Robert D. LeBlanc March 28, 2002
--------------------------------------------------------- ----------------------------------
Robert D. LeBlanc, Director & Executive Vice President Date
By /s/ Raymond S. Troubh March 28, 2002
--------------------------------------------------------- ----------------------------------
Raymond S. Troubh, Director Date
74
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors and
Stockholders of WHX Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 22, 2002 appearing in the WHX Corporation 2001 Annual Report on
Form 10 K (which report and consolidated financial statements are included in
Item 8 of this Form 10 K) also included an audit of the financial statement
schedule of the Condensed Financial Statements of the registrant listed in Item
14(b) (1) of this Form 10 K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York
February 22, 2002
75
WHX CORPORATION (PARENT ONLY)
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------------
2001 2000 1999
-------- ---------- ---------
(IN THOUSANDS)
COST AND EXPENSES:
Precious metals - LIFO liquidation $ 503 $ 3,075 $ -
Precious metals - lower of cost or market reserve 2,664 - 2,000
Depreciation 1,072 1,072 989
Management fee income (1,000) (3,083) (3,083)
Pension expense 4,461 2,584 4,161
Pension charge - WPC Group - (2,584) (4,161)
Administrative and general expense 11,680 8,164 8,967
-------- ---------- ---------
Subtotal - expenses 19,380 9,228 8,873
-------- ---------- ---------
Interest expense 30,468 31,251 30,855
Gain on sale of interest in Wheeling Downs 88,517 - -
Equity in earnings of subsidiaries 5,486 (160,623) (11,870)
Other income (expense) - net 5,768 (9,640) 34,564
-------- ---------- ---------
INCOME (LOSS) BEFORE TAXES AND EXTRAORDINARY
ITEMS 49,923 (210,742) (17,034)
Tax provision (benefit) (38,841) (29,697) (1,200)
-------- ---------- ---------
Income (loss) before extraordinary items 88,764 (181,045) (15,834)
Extraordinary items-net of tax 12,357 - 896
-------- ---------- ---------
NET INCOME (LOSS) 101,121 (181,045) (14,938)
Dividend requirement for preferred stock 19,329 20,607 20,608
-------- ---------- ---------
Net income (loss) available to common stock $ 81,792 $ (201,652) $ (35,546)
======== ========== =========
SEE NOTES TO PARENT ONLY FINANCIAL STATEMENTS
76
WHX CORPORATION (PARENT ONLY)
CONSOLIDATED BALANCE SHEETS YEAR ENDED DECEMBER 31,
------------------------------------------
2001 2000
------------------------------------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 997 $ 168
Short term investments 244,883 69,319
Receivables 387 4,223
Inventories 21,999 44,991
Prepaid expenses and deferred charges 1,074 1,227
-------------------- --------------------
Total current assets 269,340 119,928
Restricted cash - 33,000
Investment in and advances to subsidiaries - net 329,851 301,335
Plant and equipment, at cost less
accumulated depreciation and amortization 8,361 9,434
Prepaid pension asset 33,294 37,755
Deferred charges and other assets 8,776 15,992
Deferred income taxes 2,841 -
-------------------- --------------------
$ 652,463 $ 517,444
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 8,341 $ 9,574
Short-term debt 110,946 -
Deferred income taxes - current 7,209 13,990
-------------------- --------------------
Total current liabilities 126,496 23,564
Long-term debt 245,059 281,490
Deferred income taxes - non current - 17,822
Other liabilities 24,484 16,926
-------------------- --------------------
396,039 339,802
-------------------- --------------------
Redeemable common stock - 2,646
-------------------- --------------------
Stockholders' Equity:
Preferred stock - $.10 par value; authorized 10,000
shares; issued and outstanding: 5,571 and 5,883 shares 557 589
Common stock - $.01 par value; authorized 60,000
shares; issued and outstanding: 16,070 and 14,590 shares 161 146
Accumulated other comprehensive income (loss) (2,268) (1,501)
Additional paid-in capital 555,899 555,479
Accumulated earnings (deficit) (297,925) (379,717)
-------------------- --------------------
256,424 174,996
-------------------- --------------------
$ 652,463 $ 517,444
==================== ====================
SEE NOTES TO PARENT ONLY FINANCIAL STATEMENTS
77
WHX CORPORATION (PARENT ONLY)
CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31,
-------------------- -------------------- ---------------------
2001 2000 1999
-------------------- -------------------- ---------------------
(IN THOUSANDS)
Cash Flows From Operating Activities
Net income (loss) $ 101,121 $ (181,045) $ (14,938)
Non cash income and expenses
Depreciation and amortization 4,174 2,582 2,161
Income taxes (32,978) (18,698) (1,440)
Equity in earnings of subsidiaries (5,486) 160,623 11,870
Gain on sale of interest in Wheeling-Downs (88,517) - -
Pension expense 4,460 2,581 4,161
Extraordinary item - net of tax (12,357) - (896)
Decrease/(increase) in working capital elements
Receivables - including affiliated companies 8,186 (14,300) 19,480
Inventories 22,992 47,453 2,543
Other current assets 153 (286) (147)
Other current liabilities 22,449 (45,842) 3,421
Short term investments - trading (175,565) 590,037 42,725
Margin borrowings 110,946 (495,542) 8,040
Other items (net) (6,521) (6,940) 470
-------------------- -------------------- ---------------------
Net cash (used)/provided by operating activities (46,943) 40,623 77,450
-------------------- -------------------- ---------------------
Cash Flows from Investing Activities
Note receivable - WPC (30,453) - -
Release of restricted cash - DIP 33,000 - -
Advances to WPC (8,369) - -
Purchase of fixed asset - - (10,500)
Settlement of Intercompany balances - WPC (32,000) - -
Dividend from affiliated companies 2,800 - 1,888
Guarantee of DIP Term Note - (33,000) -
Proceeds from sale of interest in Wheeling-Downs 105,000 - -
Contribution to Handy & Harman (6,300) - -
Loan to Unimast (48,381) - -
Unimast loan repayment 48,381 - -
-------------------- -------------------- ---------------------
Net cash provided/(used) by investing activities 63,678 (33,000) (8,612)
-------------------- -------------------- ---------------------
Cash flows from financing activities
Cash paid on extinguishment of debt (15,906) - (18,585)
Commom stock repurchase - - (30,591)
Preferred stock dividends - - (20,608)
Consent solicitation fees - (8,368) -
-------------------- -------------------- ---------------------
Net cash used by financing activities (15,906) (8,368) (69,784)
-------------------- -------------------- ---------------------
Increase/(Decrease) in cash and cash equivalents 829 (745) (946)
Cash and cash equivalents at beginning of period 168 913 1,859
-------------------- -------------------- ---------------------
Cash and cash equivalents at end of period $ 997 $ 168 $ 913
==================== ==================== =====================
SEE NOTES TO PARENT ONLY FINANCIAL STATEMENTS
78
NOTES TO WHX PARENT ONLY FINANCIAL STATEMENTS
NOTE 1
BASIS OF PRESENTATION
The parent only financial statements include the accounts of all
subsidiary companies accounted for under the equity method of accounting. On
November 16, 2000, Wheeling-Pittsburgh Corporation ("WPC"), a wholly owned
subsidiary of WHX Corporation ("WHX"), and six of its subsidiaries ("the WPC
Group") filed petitions seeking reorganization under Chapter 11 of Title 11 of
the United States Bankruptcy Code. (See Note 2 to the WHX Parent Only Financial
Statements). As a result of the Bankruptcy Filing, the accompanying parent only
statements of operations and statements of cash flows exclude the equity loss of
WPC for the periods after November 16, 2000.
The WHX parent company consists of WHX, WHX Aviation, WHX Metals,
WHX Entertainment, and Wheeling-Pittsburgh Capital Corporation. WHX is a holding
company that has been structured to invest in and/or acquire a diverse group of
businesses on a decentralized basis. Its subsidiary companies are: Handy &
Harman ("H&H"), a diversified manufacturing company whose strategic business
segments encompass, specialty wire & tubing, precious metals plating and
fabrication, and engineered materials; and Unimast Incorporated ("Unimast"), a
leading manufacturer of steel framing and other products for commercial and
residential construction. On June 29, 2001, WHX acquired certain assets of
Pittsburgh-Canfield Corporation as part of the Settlement Agreement with WPC.
(See Note 2 to the WHX Parent Only Financial Statements). WHX's other business
consists of Wheeling-Pittsburgh Corporation ("WPC") and its subsidiaries
including Wheeling-Pittsburgh Steel Corporation ("WPSC" and together with WPC
and its other subsidiaries, the "WPC Group"), a vertically integrated
manufacturer of value-added and flat rolled steel products. WHX, together with
all of its subsidiaries shall be referred to herein as the "Company."
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 the
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These WHX Parent Only
Financial Statements should be read in conjunction with the Company's audited
consolidated financial statements contained in this Form 10K for the year ended
December 31, 2001.
NOTE 2 - WPC GROUP BANKRUPTCY AND RELATED CONTIGENCIES
On November 16, 2000, the WPC Group filed petitions for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Ohio. As a result, subsequent to the commencement of the
Bankruptcy Filing, the WPC Group sought and obtained several orders from the
Bankruptcy Court that were intended to enable the WPC Group to continue business
operations as debtors-in-possession. Since the Petition Date, the WPC Group's
management has been in the process of stabilizing their businesses and
evaluating their operations, while continuing to provide uninterrupted services
to its customers.
On November 17, 2000, the Bankruptcy Court granted the WPC Group's
motion to approve a $290 million Debtor in Possession Credit Agreement ("DIP
Credit Agreement") provided by Citibank, N.A., as initial issuing bank, Citicorp
U.S.A., Inc., as administrative agent, and the DIP Lenders. Pursuant to the DIP
Credit Agreement, Citibank, N.A. made term loan advances to the WPC Group up to
a maximum aggregate principal amount of $35 million. In addition, the DIP
Lenders agreed, subject to certain conditions, to provide the WPC Group with
revolving loans, swing loans and letter of credit accommodations in an aggregate
amount of up to $255 million. In January 2002, the WPC Group requested and
received a reduction in the revolving loans, swing loans and letter of credit
accommodations to a maximum aggregate amount of up to $175 million. In
connection with the Bankruptcy Filing, WHX had guaranteed $30 million of the
term loan portion of the DIP Credit Agreement (the "Term Loan") and deposited in
a pledged asset account $33 million of funds in support of such guaranty.
Effective as of June 1, 2001, WHX purchased a participation interest comprising
an undivided interest in the Term Loan in the amount of $30 million, plus
interest accrued but not paid on such amount of the Term Loan through June 1,
2001. Concurrently with such transaction, WHX's guaranty of $30 million of the
Term Loan described above was terminated and
79
the $33 million of funds previously deposited in a pledged asset account in
support of such guaranty were released to WHX. WHX paid to Citibank $30.5
million of such deposited funds to purchase WHX's participation interest in the
Term Loan. WPC borrowings outstanding under the DIP Credit Facility for
revolving loans totaled $127.2 million and $123.9 million at December 31, 2001
and 2000, respectively. The weighted-average interest rates on the DIP Credit
Facility for revolving loans were 7.4% and 10.1% in 2001 and 2000, respectively.
Term loans under the DIP Credit Facility totaled $34.4 million and $35.1 million
at December 31, 2001 and 2000, respectively. At March 23, 2002, availability
under the DIP Credit Facility was $4.6 million. The DIP Credit Facility expires
on the earlier of November 17, 2002 or the completion of a Plan of
Reorganization. WPC intends to have completed a Plan of Reorganization by
November 16, 2002. If a Plan of Reorganization is not completed by then, WPC
will pursue an extension of or a replacement of the current DIP Credit Facility.
There can be no guarantee that this will occur.
Although the WPC Group expects to file a Plan of Reorganization at
an appropriate time in the future, there can be no assurance at this time that a
Plan of Reorganization will be proposed by the WPC Group, approved or confirmed
by the Bankruptcy Court, or that such plan will be consummated. The WPC Group
currently has the exclusive right to file a Plan of Reorganization. The
exclusive filing period has been extended most recently until April 25, 2002 by
the Bankruptcy Court at the WPC Group's request, and while the WPC Group intends
to request extensions of the exclusivity period if necessary, there can be no
assurance that the Bankruptcy Court will grant future extensions. If the
exclusivity period were to expire or be terminated, other interested parties,
such as creditors of the WPC Group, would have the right to propose alternative
plans of reorganization.
During the period January 1, 2001 through December 31, 2001, the WPC
Group incurred a net loss of $172.2 million, which is not reflected in the
Company's December 31, 2001 results of operations.
At January 1, 2000, $136.8 million of the Company's net equity
represented its investment in the WPC Group. In addition to this investment,
WHX, on November 17, 2000, guaranteed $30 million of the WPC Group's
debtor-in-possession term loan. Such guaranty was terminated effective as of
June 1, 2001 concurrently with WHX's purchase of a participation interest in the
Term Loan as discussed above. The recognition of the WPC Group's net loss of
$176.6 million, in the year 2000, has eliminated the investment's carrying value
of $136.8 million. In November of 2000, WHX recorded a liability of $39.8
million representing the excess of the WPC Group's loss over the carrying amount
of the investment.
A Settlement and Release Agreement ("Settlement Agreement") by and
among WPSC, WPC, WHX, and certain affiliates of WPSC, WPC and WHX, received
approval of the United States Bankruptcy Court for the Northern District of Ohio
on May 24, 2001, was entered into on May 25, 2001, and became effective on May
29, 2001. Pursuant to the Settlement Agreement certain outstanding claims among
the parties thereto were resolved, including without limitation, all
inter-company receivables and payables between the WHX Group and the WPC Group.
The Settlement Agreement provided, in part, that the Settlement
Agreement would be effective upon the occurrence of each of the following
transactions, (i) the payment by WHX to WPC of $17 million; (ii) the exchange of
releases between the WPC Group and the WHX Group; (iii) a binding agreement by
WHX to purchase certain assets of Pittsburgh-Canfield Corporation ("PCC") for
$15 million, plus the assumption of certain trade payables, subject to certain
other terms and conditions; (iv) the termination of the Tax Sharing Agreements
between WHX and WPC; (v) the delivery by WHX of an agreement to the WPC Group
whereby WHX agreed not to charge or allocate any pension obligations, expenses
or charges to the WPC Group with respect to the WHX Pension Plan, subject to
certain limitations as provided therein, through and including the earlier of
the effective date of a plan or plans of reorganization and December 31, 2002;
(vi) the amendment of the DIP Credit Agreement as provided in the Settlement
Agreement; (vii) the execution by WPC Land Corporation of such instruments as
may be necessary to effect the transfer of title, to WPSC, of certain properties
specified in the Settlement Agreement; and (viii) the consent by the lenders
party to the DIP Credit Agreement to the transactions described in the
Settlement Agreement. Such transactions, other than the acquisition of certain
assets of Pittsburgh-Canfield Corporation, all occurred effective May 29, 2001.
The sale of certain assets of Pittsburgh-Canfield Corporation closed on June 29,
2001. The PCC agreement includes a one-year repurchase option for the seller.
The repurchase price is $15 million plus the sum of environmental expenditures
and capital expenditures made by the Company. In addition, the repurchase price
will be adjusted for any changes in working capital.
As a result of the total cash payments of $32 million to the WPC
Group by WHX, all intercompany receivables and liabilities (except for
commercial trade transactions), including the liability for redeemable common
stock, were settled. In addition, WHX recorded the fair value of the net assets
of PCC of $5.4 million.
80
On October 22, 2001, the Bankruptcy Court entered an order ("October
Order"), approving several transactions intended, among other things, to provide
the WPC Group with additional liquidity. As part of the October Order, the
Bankruptcy Court approved a Memorandum of Understanding by and among the
Company, Wheeling-Pittsburgh Corporation ("WPC"), Wheeling-Pittsburgh Steel
Corporation ("WPSC") and the United Steelworkers of America, AFL-CIO-CLC
("USWA"), pursuant to which the Company agreed to provide to WPSC (1) up to $5
million of secured loans and $5 million of liquidity support (part of which
consists of secured financing terms) during the period from the Order through
January 31, 2002, (2) if certain conditions are met, an additional $2 million of
secured loans (for an aggregate of $7 million) and the maintenance of the $5
million of liquidity support referred to above, during the period from February
1, 2002 through March 31, 2002, (the conditions were not met, accordingly the
additional $2.0 million in secured loans were not made), and (3) a $25 million
contribution to a new WPSC defined benefit pension plan contingent upon a
confirmed WPSC Chapter 11 plan of reorganization. Through December 31, 2001 WHX
had advanced $5.0 million of the secured loans and up to $5.5 million of secured
financing. At December 31, 2001 the outstanding balance of these secured
advances was $5.0 million and $3.4 million of liquidity support.
The October Order also approved a Supplemental Agreement among the
members of the WPC Group and the Company, under which all of the extensions of
credit referred to in the preceding paragraph are granted superpriority claim
status in WPSC's Chapter 11 case and are secured by a lien on substantially all
of the assets of WPSC, junior to the liens, security interests and superpriority
claims of the lenders to WPSC under the DIP Credit Agreement. The Supplemental
Agreement also provides, among other things, that the Company may sell, transfer
or dispose of the stock of WPC free from the automatic stay imposed under the
Bankruptcy Code, and under specified circumstances requires WPC to support
certain changes to the Company's pension plan.
Additionally, the October Order approved the terms of the Modified
Labor Agreement ("MLA") by and among WPC, WPSC and the USWA. The Company is not
a party to the MLA. The MLA modifies the current WPSC collective bargaining
agreement to provide for, among other things, immediate deferrals in wages and
certain changes in medical benefits in exchange for improvements in pension
benefits for hourly employees upon a confirmed WPSC Chapter 11 plan of
reorganization. The MLA is part of a comprehensive support arrangement that also
involves concessions from WPSC salaried employees, WPSC's vendors and other
constituencies in the Chapter 11 proceedings.
In January 2002, WPSC finalized a financial support plan, which
included a $5 million loan from the state West Virginia, a $7.2 million loan
from the state of Ohio, $10 million in advance by the Unimast segment for future
steel purchases, a portion of which shall be delivered on or before March 31,
2002, and additional wage and salary deferrals from WPSC union and salaried
employees.
Management of the Company cannot at this time determine with
certainty the ultimate outcome of the Chapter 11 proceedings; however it is
possible that the following outcomes could result:
o The WPC Group could reorganize, and its creditors could
receive a portion of their claims in cash or in stock of
WPC or WPSC.
o The WPC Group could be sold in its entirety or segments
could be sold, and the proceeds from such sale(s) would
be utilized to satisfy creditor claims.
o The creditors could assume ownership of the WPC Group or
WPSC and continue to operate such businesses.
In each of the above possible outcomes, the WHX Group would have
little or no future ownership in or involvement with the WPC Group, and the WHX
Group future cash obligations to or on behalf of the WPC Group would be minimal
to none (other than the $25.0 million pension contribution referred to above).
It is also possible that none of the above outcomes would occur and the WPC
Group may shut down a number of their operations. According to the Company's
preliminary evaluation of potential pension obligations, if a partial shutdown
of the WPC Group's operations were to occur in the immediate future WHX's
liability for early retirement pension benefits could range from approximately
$80 million to $100 million. It is also possible that the WPC Group could cease
operations in their entirety and this liability would then be significantly
greater. However, management does not believe this occurrence is likely. Under
current pension law and regulations based on the Company's analysis of the
current funded status of the pension plan, if a partial shutdown were to occur
after January 1, 2002, the cash funding obligations related to such partial
shutdown would likely not begin until 2003 and would extend over several years.
Such cash funding obligations would have a material adverse impact on the
liquidity, financial position and capital resources of the Company. The
Company's funding obligation and the impact on the Company's liquidity,
financial position and capital resources could be substantially reduced or
eliminated if (1) a partial shutdown, if it
81
occurs, were to occur at such a time that the fair market value of the assets of
the plan approximates or exceeds the plan's liabilities (including the early
retirement benefits), (2) a shutdown were to occur gradually over several years
or (3) the number of the WPC Group's operations shut down were less than those
assumed in estimating the above-mentioned amounts.
In connection with past collective bargaining agreements by and
between the WPC Group and the United Steelworkers of America, AFL-CIO-CLC (the
"USWA"), the WPC Group is obligated to provide certain medical insurance, life
insurance, disability and surviving spouse retirement benefits to retired
employees and their dependents (The "OPEB Obligations"). WHX is not a signatory
to any of these agreements. However, WHX has separately agreed to be
contingently liable for a portion of the OPEB obligations. WHX's contingent
obligation would be triggered in the event that the WPC Group were to fail to
satisfy its OPEB Obligations. WHX's contingent obligation is limited to 25% of
the Accumulated Post-Retirement Benefit Obligation with respect to the WPC
Group's employees and retirees represented by the USWA. The total OPEB
Obligation disclosed in the Wheeling Pittsburgh Steel Corporation's December 31,
2001 Consolidated Financial Statements amounted to $307.1 million. WHX has
estimated that approximately 85% of employees and retirees entitled to such OPEB
obligations are represented by the USWA.
WHX's contingent obligation exists only so long as (1) a majority of
the directors of WPSC or WPC are affiliated with WHX; (2) WHX controls the Board
of Directors of WPSC or WPC through appointment or election of a majority of
such directors; or (3) WHX, through other means, exercises a level of control
normally associated with (1) or (2) above.
NOTE 3 - SHORT TERM INVESTMENTS
The composition of the Company's short-term inversments are as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2001 2000
---- ----
(IN THOUSANDS)
Trading Securities:
U.S. Treasury securities $ 130,235 $ -
Reverse Repurchase Agreement 105,000 45,479
Equities 9,540 21,876
Other 108 1,964
--------- --------
$ 244,883 $ 69,319
========= ========
These investments are subject to price volatility associated with any
interest-bearing instrument. Fluctuations in general interest rates affect the
value of these investments.
Net unrealized holding gains and losses on trading securities held
at period end and included in other income for 2001 and 2000 were a loss of
$12.3 million and $24.3 million, respectively. At December 2001, the Company had
short term margin borrowings of $110.9 million, related to the short-term
investments.
In 2000, the Company reclassified $19.6 million of
available-for-sale investments to the trading category and recorded a realized
loss upon the subsequent sale of $13.1 million. As a result of the
reclassification, the Company recorded a favorable reclassification adjustment
within other comprehensive income of $7.2 million, net of related income tax
benefit of $3.9 million.
82
NOTE 4 - INVENTORIES
YEAR ENDED DECEMBER 31
----------------------
2001 2000
---- ----
(DOLLARS IN THOUSANDS)
Precious metals $ 21,842 $ 41,571
LIFO reserve 157 3,420
-------- --------
$ 21,999 $ 44,991
======== ========
Inventories consist of gold and silver, which are currently leased
to Handy & Harman. (See Note 8 to the Notes of the Parent Only Financial
Statements). Inventory consisted of 9,117 and 20,000 ounces of gold and
4,155,000 and 7,850,000 ounces of silver at December 31, 2001 and 2000,
respectively.
During 2001 and 2000, certain inventory quantities were reduced,
resulting in liquidations of LIFO inventories, the effect of which decreased
income by approximately, $0.5 million and $3.0 million in 2001 and 2000,
respectively. A non-cash charge resulting from the lower of cost or market
adjustment to precious metal inventories decreased income by $2.7 million in
2001 and $2.0 million in 1999.
In 2001, $3,000,000 of gold, at fair market value, was contributed
to Handy & Harman.
Supplemental inventory information:
YEAR ENDED DECEMBER 31
------------------------------------------
2001 2000
-------------------- -------------------
(IN THOUSANDS, EXCEPT PER OUNCE)
Precious metals stated at LIFO cost $ 21,999 $ 44,991
Market value per ounce:
Silver $ 4.650 $ 4.595
Gold $ 276.50 $ 270.80
83
NOTE 5 - INVESTMENT IN AND ADVANCES TO SUBSIDIARIES - NET
The following table details the investments in associated companies, accounted
for under the equity method of accounting.
b YEAR ENDED DECEMBER 31,
------------------------------------------
2001 2000
-------------------- --------------------
(IN THOUSANDS)
Investment in:
Handy & Harman $ 270,297 $ 269,858
Unimast 61,721 57,721
PCC 747 -
Wheeling-Downs Racing Association, Inc. - 13,625
-------------------- --------------------
332,765 341,204
-------------------- --------------------
Advances to/(Due to):
Handy & Harman 1,310 1,775
Unimast 361 2,009
PCC (9,789) -
-------------------- --------------------
(8,118) 3,784
-------------------- --------------------
Notes:
Unimast - Current Portion 2,000 2,000
Unimast - Long-Term Portion 3,204 5,204
-------------------- --------------------
5,204 7,204
-------------------- --------------------
WPC Group - DIP Agreement 31,005 -
WPC Group - Other 8,369 (11,074)
-------------------- --------------------
39,374 (11,074)
-------------------- --------------------
Loss in excess of investment in WPC Group (39,374) (39,783)
-------------------- --------------------
Investment in and advances to subsidiaries - net $ 329,851 $ 301,335
==================== ====================
The Handy & Harman and Unimast loan agreements contain provisions
restricting cash payments to WHX. The agreements allow the payment of management
fees, income taxes pursuant to tax sharing agreements, loan repayments and
related interest, and certain other expenses. In addition dividends may be paid
under certain conditions. At December 31, 2001 the net assets of these
subsidiaries amounted to $329.9 million, of which approximately $0.6 million was
not restricted as to the payment of dividends to WHX.
NOTE 6 - LONG-TERM DEBT
YEAR ENDED DECEMBER 31
-----------------------------------
2001 2000
---------------- ----------------
(in thousands)
Senior Notes due 2005, 10 1/2% $ 245,059 $ 281,490
================ ================
84
The fair value of long-term debt at December 31, 2001 and 2000 was
$120,079 and $180,007, respectively. Fair value of long-term debt is estimated
based on trading in the public market.
A summary of the financial agreement at December 31, 2001 follows:
WHX CORPORATION 10 1/2% SENIOR NOTES DUE 2005:
On April 7, 1998, WHX issued $350 million principal amount of 10 1/2
% Senior Notes ("Notes"), which replaced privately placed notes of the same
amount. Interest on the Notes is payable semi-annually on April 15 and October
15 of each year, commencing October 15, 1998. The Notes mature on April 15,
2005.
The 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), the Company
will be required to make an offer to repurchase all or any part of each holder's
Notes at 101% of the principal amount thereof, plus accrued interest and
liquidated damages, if any, thereon to the date of repurchase.
The 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 Notes indenture, dated as of April 7, 1998 ("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 first quarter of 1999, the Company purchased and retired
$20.5 million aggregate principal amount of the Notes in the open market
resulting in an extraordinary gain of $.9 million net of tax.
During the second quarter of 2001, the Company purchased and retired
$36.4 million aggregate principal amount of the Notes in the open market
resulting in an extraordinary gain of $12.4 million net of tax.
During the period January 1, 2002 through March 21, 2002, WHX
purchased and retired $82.5 million aggregate principal amount of Senior Notes
in the open market for $50.6 million, as of March 21, 2002.
On October 4, 2000, WHX successfully completed a solicitation of
consents from holders of the Notes to amend certain covenants and other
provisions of the Indenture. The amendments are set forth in the Supplemental
Indenture and provide, among other things, for amendments to certain covenants
which restrict the Company's ability to make restricted payments, incur
additional indebtedness, make permitted investments or utilize proceeds from
asset sales. The Supplemental Indenture also prohibits the payment of dividends
on the Company's preferred stock until October 1, 2002, and thereafter only in
the event such payments satisfy certain conditions set forth in the Indenture,
as amended by the Supplemental Indenture. In addition, the amendments remove as
events of default under the Indenture those relating to defaults under any
mortgage, indenture or instrument by, judgments against and bankruptcy,
insolvency and related filings and other events of WPC, or any of its direct or
indirect subsidiaries. Accordingly, the Bankruptcy Filing is not an event of
default under the Notes. In connection with the solicitation WHX made a payment
equal to 2% of the principal amount of the Notes ($20 in cash for each $1,000
principal amount of Notes) to each holder of Notes whose consent was received
and accepted prior to the expiration date. Such payments amounted to $5.5
million and will be amortized to interest expense over the remaining term of the
Notes.
85
INTEREST COST
Aggregate interest costs on debt during the three years ended December 31 is as
follows:
2001 2000 1999
---------------- -------------------- -----------------
(IN THOUSANDS)
Interest Expense $ 30,468 $ 31,251 $ 30,855
================ ==================== =================
Interest Paid $ 27,644 $ 29,556 $ 29,556
================ ==================== =================
NOTE 7 - STOCKHOLDERS' EQUITY
The authorized capital stock of WHX consists of 60,000,000 shares of
Common Stock, $.01 par value, of which 16,071,007 shares were outstanding as of
December 31, 2001, and 10,000,000 shares of Preferred Stock, $.10 par value, of
which 2,614,226 shares of Series A Convertible Preferred Stock and 2,956,700
shares of Series B Convertible Preferred Stock were outstanding as of December
31, 2001. In 1999, the Company purchased 3,594,300 shares of Common Stock in
open market purchases. No additional shares were purchased during 2001 or 2000.
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 million. On October 4,
2000, pursuant to a solicitation of consents from holders of its 10 1/2% Senior
Notes, certain covenants and other provisions of the indebtedness were amended.
The Supplemental Indenture prohibits the payment of dividends on the Company's
preferred stock until October 1, 2002, and thereafter only in the event such
payments satisfy certain conditions set forth in the Indenture, as amended by
the Supplemental Indenture. Dividends on the shares of the Series A Convertible
Preferred Stock are cumulative and 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. The Company has accrued $10.6 million representing dividends in
arrears at December 31, 2001.
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 rate of
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 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 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. During 2001 and 1999, 295,899 and 175 shares respectively were
converted into Common Stock. There were no conversions in 2000.
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. On October
4, 2000, pursuant to a solicitation of consents from holders of its 10 1/2%
Senior Notes, certain covenants and other provisions of the indebtedness were
amended. The Supplemental Indenture prohibits the payment of dividends on the
Company's preferred stock until October 1, 2002, and thereafter only in the
event such payments satisfy certain conditions set forth in the Indenture, as
amended by the Supplemental Indenture. Dividends on the shares of the Series B
Convertible Preferred Stock, are cumulative, and 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. The Company has accrued $13.9 million
representing dividends in arrears at December 31, 2001.
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 rate of
2.4510 shares of Common Stock for each share of Series B Convertible Preferred
Stock, subject to adjustment under certain conditions.
86
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 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. During 2001, 16,100 shares were converted into Common Stock. There
were no conversions in 2000 and 1999.
REDEEMABLE COMMON STOCK
As of December 31, 2000 certain present and former employees of the
WPC Group hold, through an Employee Stock Ownership Plan ("ESOP"), 244,507
shares of common stock of WHX. These employees received such shares as part of
the 1991 Chapter 11 Plan of Reorganization in exchange for Series C preferred
shares of Wheeling-Pittsburgh Steel Corporation (WPC's predecessor company prior
to the 1990 bankruptcy). 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 shares 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. Management had estimated the liability for
future redemptions to be approximately $2.6 million. As a result of the
Settlement Agreement discussed in Note 2, the liability for redeemable common
shares was assumed by WPC, accordingly participants will sell their shares to
WPC. Approximately 218,000 shares of Common Stock of WHX were held by the ESOP
at December 31, 2001.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Chairman of the Board of WHX Corporation is the president and
sole shareholder of WPN Corp. ("WPN"). Pursuant to a management agreement as
amended, and approved by a majority of the non-management directors of the
Company, WPN provides certain financial, management advisory and consulting
services to WHX Corporation. Such services include, among others,
identification, evaluation and negotiation of acquisitions, responsibility for
financing matters for WHX Corporation 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 2001, 2000 and 1999.
The accompanying parent only financial statements reflect $2.5 million of this
annual amount in net other income/expense as an offset to investment
income/expense. In addition, in October 1999, the Board of Directors awarded WPN
an additional bonus of $3.3 million in recognition of the returns earned by WPN
on behalf of WHX Corporation 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.
The WPC Group is included in the Company's consolidated federal
income tax return. WHX and the WPC Group had entered into a tax sharing
agreement, dated July 26, 1994, which provided that the WPC Group would be paid
for any reduction in the combined consolidated federal income tax liability
resulting from the utilization or deemed utilization of deductions, losses and
credits whether from current or prior years which are attributable to WPC. The
Tax Sharing Agreement was terminated in 2001 as part of the Settlement
Agreement. As a result, WHX was able to recognize benefits from WPC's net
operating losses (See Note 4 to the Consolidated Financial Statements).
As part of the Settlement Agreement, WHX paid $32.0 million to the
WPC Group in 2001. As a result of the Settlement Agreement, among other things,
all intercompany receivables and liabilities were settled. In addition WHX
acquired the net assets of PCC from the WPC Group.
The WPC Group participates in the WHX defined benefit pension plan.
As a result of the Settlement Agreement, WHX may not charge any pension expense
to the WPC Group with respect to the WHX Pension Plan through December 31, 2002.
As a result, WHX incurred non-cash pension expense of approximately $15.0
million for the WPC Group. (See Note 2 to the Consolidated Financial
Statements).
On June 1, 2001, WHX purchased from Citibank a $30.5 million
participation in the DIP credit agreement for the WPC Group for which WHX
receives interest at a rate of 13% per annum, paid monthly and an additional
3.0% per annum payment in-kind.
87
As a result of the October Order, WHX provided the WPC Group with
$5.0 million in secured financing in 2001. In addition, WHX provided up to $5.0
million in liquidity support to the WPC Group. At December 31, 2001, the
outstanding balance of these secured advances was $5.0 million and $3.4 million
liquidity support.
On October 9, 2000 and November 14, 2000, WHX transferred precious
metal to WPC with a market value of $35.2 million and a tax basis of a
significantly lower amount. Such proceeds were applied to the WHX net liability
due to WPC. In connection with the precious metal transfer, WPC agreed to amend
the provisions of the tax sharing agreement relating to the utilization, by WHX
of WPC's net operating losses in an amount equal to the tax gain realized on the
sale of such metals. WPC immediately sold the precious metals in the open market
and received proceeds of $35.2 million.
The parent company charged its wholly-owned subsidiaries, Handy &
Harman and Unimast, $750,000 and $250,000, respectively in management fees in
each of the years ended December 31, 2001, 2000 and 1999.
WHX Entertainment received a management fee from Wheeling-Downs
Racing Association (a 50% owned joint venture) of $12,899,000; $7,740,000; and
$6,788,000 in 2001, 2000 and 1999, respectively. In December 2001, WHX
Entertainment sold its 50% interest in Wheeling-Downs Racing Association.
Handy & Harman is included in WHX Corporation's consolidated tax
return. The Tax Sharing Agreement with Handy & Harman specifies funding
requirements to the parent company "as if" Handy & Harman continued to be an
independent corporation. Estimated income tax payments to the parent company
from Handy & Harman in 2001, 2000 and 1999 amounted to $2,250,000, $9,063,000
and $7,105,000 respectively.
Unimast is included in WHX Corporation's consolidated tax return.
The Tax Sharing Agreement with Unimast specifies funding requirements to the
parent company as pre-tax income multiplied by the federal statutory rate. To
the extent that this cash payment to the parent company exceeds or is less than
the requirement "as if" Unimast were an independent corporation, a dividend or
capital contribution is recorded by the parent company. Income tax payments to
the parent company from Unimast in 2001, 2000 and 1999 amounted to $3,228,000,
$4,812,000 and $6,890,000, respectively.
Included in the parent company only balance sheets is $5,204,000 and
$7,204,000 in 2001 and 2000, respectively of notes receivable from Unimast due
to WHX. These amounts earn interest at a variable rate and mature March 2003.
Interest remitted by Unimast to WHX amounted to $463,000, $603,000 and $437,000
in 2001, 2000 and 1999, respectively. Principal payments amounting to
$2,000,000, $1,000,000 and $0 in 2001, 2000 and 1999, respectively were remitted
by Unimast to WHX.
On July 31, 1998, Handy & Harman transferred 97,000 ounces of gold
and 13,000,000 ounces of silver to WHX by way of an in-kind dividend having an
aggregate fair value, net of deferred tax liabilities, of $62,750,000. WHX in
turn made an in-kind contribution to WHX Metals Corporation, a separate wholly
owned subsidiary of WHX. Handy & Harman will lease from WHX Metals Corporation
amounts of gold and silver as required for its operating needs. Handy & Harman
will pay to WHX Metals Corporation interest on the metal ounces leased. At
December 31, 2001 and December 31, 2000, Handy & Harman was leasing 9,000 and
20,000 ounces of gold. At December 31, 2001 and December 31, 2000, Handy &
Harman was leasing 4,155,000 and 7,750,000 ounces of silver. The rates for the
leasing of gold and silver to Handy & Harman are 2.0% and 3.0% per annum,
respectively. Metal interest charged to Handy & Harman was $753,000, $2,062,000
and $2,374,000 for 2001, 2000 and 1999, respectively.
In 2001, WHX contributed $3,000,000 in gold, at fair market value,
and $3,300,000 in cash to Handy & Harman. Also in 2001, Handy & Harman paid a
dividend to WHX of $2,800,000.
See Note 2 to the Parent Only Financial Statements.
88
NOTE 9 - OTHER INCOME
YEAR ENDED DECEMBER 31,
2001 2000 1999
------------------- ------------------- -------------------
(IN THOUSANDS)
Interest and investment income/(loss) $ (4,411) $ (17,198) $ 25,416
Interest income - Unimast 410 616 -
Interest income - Handy & Harman 711 2,009 2,471
Wheeling-Downs management fee 12,899 7,740 7,105
WPN management fee (2,500) (2,500) (2,500)
WPN bonus - - (3,280)
Gain on sale of aircraft - 932 4,380
Other, net (1,341) (1,239) 972
------------------- ------------------- -------------------
$ 5,768 $ (9,640) $ 34,564
=================== =================== ===================
NOTE 10 - GAIN ON SALE OF INTEREST IN WHEELING-DOWNS RACING ASSOCIATION, INC.
In December 2001, WHX Entertainment sold its 50% interest in
Wheeling-Downs Racing Association, Inc. for $105 million in cash, resulting in
an $88.5 million pre-tax gain.
NOTE 11 - EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2001 2000 1999
-------------------- ------------------ ------------------
(IN THOUSANDS)
Handy & Harman $ (2,594) $ 6,137 $ 9,010
Unimast 4,833 7,325 13,062
PCC 747 - -
WPC - Group - (176,581) (33,942)
Wheeling-Downs 2,500 2,496 -
-------------------- ------------------ ------------------
$ 5,486 $ (160,623) $ (11,870)
==================== ================== ==================
89
NOTE 12 - MANAGEMENT FEE
The following table details management fees charged to wholly-owned subsidiaries by the parent:
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2001 2000 1999
------------------ ----------------- ----------------
(IN THOUSANDS)
Charged to Handy & Harman $ 750 $ 750 $ 750
Charged to Unimast 250 250 250
Charged to WPC - 2,083 2,083
------------------ ----------------- ----------------
$ 1,000 $ 3,083 $ 3,083
================== ================= ================
90
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Wheeling-Pittsburgh Corporation (a wholly-owned subsidiary of WHX Corporation)
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations and of cash flows present fairly,
in all material respects, the financial position of Wheeling-Pittsburgh
Corporation and its subsidiaries (the "Company") at December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. 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 of America, 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 significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern. As discussed in
Note A, on November 16, 2000, the Company filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court in Youngstown, Ohio. Although the Company is continuing its
on-going business operations as a Debtor-in-Possession under the jurisdiction of
the Bankruptcy Court, its ability to continue as a going concern is contingent
upon, among other matters, developing a reorganization plan that is acceptable
to the Company's creditors. The approval and implementation of a reorganization
plan could materially change the recorded amounts and classifications of assets
and liabilities. Substantial losses from operations, liquidity issues,
shareholders deficits, and the uncertainty as to whether the Company will be
able to develop a satisfactory reorganization plan raises substantial doubt
about the Company's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments to the carrying
value of the assets or amounts of liabilities that might be necessary as a
consequence of implementing a reorganization plan or any adjustments relating to
the recoverability of assets or liquidation of liabilities in the ordinary
course of business that might result if the Company is unable to continue as a
going concern.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
March 28, 2002
91
WHEELING-PITTSBURGH CORPORATION
DEBTOR-IN-POSSESSION AS OF NOVEMBER 16, 2000
(A WHOLLY-OWNED SUBSIDIARY OF WHX CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2001 2000 1999
---- ---- ----
(DOLLARS IN THOUSANDS)
Revenues:
Net sales $ 835,640 $ 1,119,031 $ 1,117,744
COST AND EXPENSES:
Cost of products sold, excluding depreciation 866,065 1,054,386 994,273
Depreciation 72,551 78,859 77,724
Selling, administrative and general expense 47,173 68,165 63,342
Reorganization and professional fee expense 14,200 4,140 -
-------------- ----------------- ---------------
999,989 1,205,550 1,135,339
-------------- ----------------- ---------------
Operating loss (164,349) (86,519) (17,595)
Reorganization income (expense) 9,249 (2,592) -
Interest expense on debt (17,448) (35,969) (37,931)
Other income (expense) 351 (3,015) 318
-------------- ----------------- ---------------
Loss before taxes (172,197) (128,095) (55,208)
Tax provision (benefit) 17 90,092 (20,723)
-------------- ----------------- ---------------
Net loss $ (172,214) $ (218,187) $ (34,485)
============== ================= ===============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
92
WHEELING-PITTSBURGH CORPORATION
DEBTOR-IN-POSSESSION AS OF NOVEMBER 16, 2000
(A WHOLLY-OWNED SUBSIDIARY OF WHX CORPORATION)
CONSOLIDATED BALANCE SHEET
December 31,
----------------------------------------------------
2001 2000
(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 7,586 $ 15,534
Trade receivables, less allowance for doubtful
accounts of $1,274 and $918 106,462 130,379
Inventories 173,117 211,166
Prepaid expenses and deferred charges 8,902 18,866
----------------------- -----------------------
Total current assests 296,067 375,945
Investment in associated companies 58,650 62,157
Property, plant and equipment, at cost less
accumulated depreciation 593,888 666,454
Deferred income tax benefits 28,881 30,644
Due from affiliates, net - 16,602
Deferred charges and other assets 13,379 18,634
----------------------- -----------------------
$ 990,865 $ 1,170,436
======================= =======================
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Trade payables $ 60,342 $ 53,091
Short term debt 127,204 123,911
Payroll and employee benefits payable 26,273 35,393
Accrued federal, state and local taxes 7,697 7,183
Deferred income tax liabilities 28,881 30,644
Accrued interest and other liabilities 5,513 4,317
Long-term debt due in one year 40,344 -
----------------------- -----------------------
Total current liabilities 296,254 254,539
Long-term debt - 35,091
Other employee benefit liabilities 13,711 1,630
Other liabilities 19,386 18,384
Liabilities subject to compromise 915,118 942,182
----------------------- -----------------------
Total liabilities 1,244,469 1,251,826
----------------------- -----------------------
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock - $.01 Par value; 100 shares
issued and outstanding - -
Additional paid-in capital 335,138 335,138
Accumulated deficit (588,742) (416,528)
----------------------- -----------------------
(253,604) (81,390)
----------------------- -----------------------
$ 990,865 $ 1,170,436
======================= =======================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
93
WHEELING-PITTSBURGH CORPORATION
DEBTOR-IN-POSSESSION AS OF NOVEMBER 16, 2000
(A WHOLLY-OWNED SUBSIDIARY OF WHX CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2001 2000 1999
---- ---- ----
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Net loss $(172,214) $ (218,187) $ (34,485)
Items not affecting cash from operating activities:
Depreciation 72,551 78,859 77,724
Other postretirement benefits (9,025) (9,494) (7,898)
Deferred income taxes - 90,010 (19,653)
Pension expense 860 2,581 4,161
Equity income of affiliated companies (1,274) (1,810) (3,358)
Reorganization expense (income) (9,249) 2,592 -
Decrease (increase) from working capital elements:
Trade receivables 21,206 27,309 (23,184)
Trade receivables sold (purchased) - (100,000) 5,000
Inventories 36,705 41,029 7,144
Trade payables 7,251 69,191 30,833
Other current assets 9,824 (14,441) 1,716
Other current liabilities (9,019) (18,291) 13,667
Other items--net 2,732 35,431 (9,945)
-------------- -------------- -------------
Net cash provided by (used in) operating activities $ (49,652) $ (15,221) $ 41,722
============== ============== =============
CASH FLOWS FROM INVESTING ACTIVITIES:
Plant additions and improvements (5,033) (97,287) (72,146)
(Investments in) payments from affiliates 1,031 131 3,212
Proceeds from sales of assets due to Chapter 11 proceedings 16,808 2,967 1,460
Dividends from affiliated companies 3,750 3,750 5,000
-------------- -------------- -------------
Net cash provided by (used in) investing activities $ 16,556 $ (90,439) $ (62,474)
============== ============== =============
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings 5,253 37,582 4,401
Short term debt (DIP Facility) borrowings 3,293 123,911 -
Short term debt borrowings (payments) - (79,900) 12,901
Letter of credit collateralization - - 8,229
Receivables from affiliates 16,602 39,601 (11,510)
-------------- -------------- -------------
Net cash provided by financing activities $ 25,148 $ 121,194 $ 14,021
============== ============== =============
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,948) 15,534 (6,731)
Cash and cash equivalents at beginning of year 15,534 - 6,731
-------------- -------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,586 $ 15,534 $ -
============== ============== =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--BANKRUPTCY AND REORGANIZATION
OVERVIEW
Wheeling-Pittsburgh Corporation ("WPC") and together with its
subsidiaries, (the "Company"), is a wholly owned subsidiary of WHX Corporation
("WHX"). Wheeling-Pittsburgh Steel Corporation ("WPSC") is a wholly owned
subsidiary of WPC.
Beginning in 1998 and continuing through 2001, record high levels of
foreign steel imports caused a marked deterioration of steel prices. This record
high level of foreign steel imports over a four year period, coupled with the
indebtedness incurred by the Company as a result of a ten-month work stoppage
which ended in August 1997, and approximately $200 million of capital
expenditures used to modernize its facilities to increase quality, efficiency,
safety and environmental conditions, resulted in substantial losses and the
severe erosion of the Company's financial position and liquidity.
CHAPTER 11 FILING
On November 16, 2000, Wheeling-Pittsburgh Corporation and eight of
its wholly owned subsidiaries, representing substantially all of the
consolidated group's business, (Wheeling-Pittsburgh Steel Corporation,
Pittsburgh-Canfield Corporation, Consumers Mining Company, Wheeling-Empire
Company, Mingo Oxygen Company, WP Steel Venture Corporation, W-P Coal Company
and Monessen Southwestern Railway Company (collectively the "Debtors")) filed
petitions for relief under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court in Youngstown, Ohio.
Under Chapter 11, certain claims against the Debtors in existence
prior to the filing of the petitions for relief under the Federal bankruptcy
laws ("pre-petition") are stayed while the Debtors continue business operations
as debtors-in-possession. Claims secured against the Debtors' assets ("secured
claims") are also stayed, although the holders of such claims have the right to
move the court for relief from stay or adequate protection. Secured claims are
secured primarily by liens on the Company's land, buildings and equipment.
The Company is currently operating their businesses as
debtors-in-possession pursuant to the Bankruptcy Code. As such, actions to
collect pre-petition indebtedness of the Company and other contractual
obligations of the Company generally may not be enforced. In addition, under the
Bankruptcy Code, the Company may assume or reject executory contracts and
unexpired leases. Additional pre-petition claims may arise from such rejections,
and from the determination by the Bankruptcy Court (or as agreed by the parties
in interest) to allow claims for contingencies and other disputed amounts. From
time to time since the Chapter 11 filing, the Bankruptcy Court has approved
motions allowing the Company to reject certain business contracts that were
deemed burdensome or of no value to the Company. As of March 28, 2002, the
Company has not completed their review of all their pre-petition executory
contracts and leases for assumption or rejection. See Note H - Liabilities
Subject to Compromise and Pre-Petition Long Term Debt.
The Company received approval from the Bankruptcy Court to pay or
otherwise honor certain of their pre-petition obligations, including employee
wages. In addition, the Bankruptcy Court authorized the Company to maintain
their employee benefit programs. Funds of qualified pension plans and savings
plans are in trusts and protected under federal regulations. All required
contributions are current in the respective plans.
The Federal bankruptcy laws provide that the Debtors have an
exclusive period during which only they may propose and file and solicit
acceptances of a plan of reorganization. The exclusive period to propose a plan
for reorganization currently expires on April 25, 2002. If the Debtors fail to
file a plan of reorganization during the exclusive period (including any
extensions thereof) or, after such plan has been filed, if the Debtors fail to
obtain acceptance of such plan from the requisite impaired classes of creditors
and equity security holders during the exclusive solicitation period, any party
in interest, including a creditor, an equity security holder, a committee of
creditors or equity security holders, or an indenture trustee, may file their
own plan of reorganization for the Debtors.
95
After a plan of reorganization has been filed with the Bankruptcy
Court, the plan, along with a disclosure statement approved by the Bankruptcy
Court, will be sent to impaired creditors and equity security holders who are
entitled to vote.
Subject to certain exceptions set forth in the Bankruptcy Code,
acceptance of a plan of reorganization requires approval of the Bankruptcy Court
and the affirmative vote (i.e. more than 50% of the number and at least 66-"% of
the dollar amount, both with regard to claims actually voted) of each class of
creditors and equity holders whose claims are impaired by the plan.
Alternatively, absent the requisite approvals, the Company may seek Bankruptcy
Court approval of its reorganization plan under "cramdown" provisions of the
Bankruptcy Code, assuming certain tests are met. These requirements may, among
other things, necessitate payment in full for senior classes of creditors before
payment to a junior class can be made.
May 16, 2001 was set by the Bankruptcy Court as the last date
creditors could file proofs of claim under the Bankruptcy Code. There may be
differences between the amounts recorded in the Company's schedules and
financial statements and the amounts claimed by the Company's creditors.
Litigation may be required to resolve such disputes. See Note H - Liabilities
Subject to Compromise and Pre-Petition Long Term Debt.
The Company has incurred and will continue to incur significant
costs associated with the reorganization. The amount of these expenses, which
are being expensed as incurred, is expected to significantly affect future
results. See Note N - Reorganization Items.
DEBTOR IN POSSESSION CREDIT FACILITY
The Company has negotiated a financing arrangement (the "DIP Credit
Facility") with Citibank, N.A., as initial issuing bank, Citicorp U.S., Inc., as
administrative agent (the "Agent"), and the lenders named therein (the "DIP
Lenders"). The purpose of the DIP Credit Facility is to provide access to needed
funds during the Debtors' Chapter 11 cases.
The DIP Lenders agreed to make term loan advances to the Debtors up
to a maximum aggregate principal amount of $35 million. WPC's parent company,
WHX, has a $30 million participation in the term loan. In addition, the DIP
Lenders agreed, subject to certain conditions, to provide the Debtors with
revolving loans, swing loans and letter of credit accommodations in an aggregate
amount of up to $255 million. The aggregate maximum amount was subsequently
reduced to $225 million on May 24, 2001 and to $175 million on January 2, 2002.
The availability under the DIP Credit Facility is based on various advance rates
on Accounts Receivable and Inventories, less certain reserves. The post-petition
term loans and revolving loans are collateralized by first priority liens on the
Debtors' assets (subject to valid liens existing on the petition date) and have
been granted superpriority administrative status, subject to certain carve-outs
for fees payable to the United States Trustee and for professional fees.
The DIP Credit Facility required the immediate repayment of all of
the outstanding obligations under the pre-petition Revolving Credit Agreement
(the "Pre-petition Credit Agreement") that WPSC entered into with certain
financial institutions (the "Pre-petition Lenders") and Citibank, N.A., as
agent. The Pre-petition Credit Agreement provided WPSC with a revolving line of
credit for borrowings up to $150 million, with a $25 million sub-limit for
letters of credit. As of the petition date, the Debtors were obligated for
approximately $84.7 million in loans under the Pre-petition Credit Agreement and
contingently liable for letters of credit in the amount of approximately $17
million. Those obligations were collateralized primarily by 100% of the
inventory of WPSC and Pittsburgh-Canfield Corporation and were guaranteed by WPC
and by Pittsburgh-Canfield Corporation.
The DIP Credit Facility also required the immediate repurchase of
accounts receivable from a pre-petition securitization facility. This repurchase
of receivables was required to provide unencumbered collateral for post-petition
date loans.
Other terms of the DIP Credit Facility are as follows:
o Revolving loans bear interest at (i) the base rate plus the
applicable margin for base rate loans or (ii) the applicable
Eurodollar rate plus the applicable margin for Eurodollar rate
loans. The applicable margin ranges from 1.75% to 2.25% for base
rate loans and from 2.75% to 3.25% for Eurodollar rate loans, in
each case depending on the Debtors' performance level. The base
rate
96
is the rate announced from time to time by Citibank, N.A. as its
base rate and the Eurodollar rate is the rate calculated by the
Agent with reference to the rate per annum offered for certain
deposits in dollars at Citibank, N.A.'s London office. During the
continuance of an Event of Default, interest on term loans and
revolving loans will be payable on demand at 2% per annum above
the rate that would otherwise be in effect.
o Term loans bear interest at 16% per annum (of which 3% may, at
the Debtors' option, be paid in kind).
o A commitment fee is payable on the daily unused portion of the
revolving loan commitment under the DIP Credit Facility at a rate
per annum determined by reference to an applicable percentage,
which ranges from 0.500% to 0.625% depending on the Debtors'
performance level.
o An administrative fee for letter of credit accommodations is
payable on the average daily maximum amount available under
outstanding letters of credit at a rate per annum equal to the
applicable margin for letter of credit fees, which ranges from
2.50% to 3.00% depending on the Debtors' performance level.
During the continuance of an Event of Default, letter of credit
fees will be payable on demand at 2% per annum above the rate
that would otherwise be in effect.
Borrowings under the DIP Credit Facility for revolving loans totaled
$127.2 million and $123.9 million at December 31, 2001 and 2000, respectively.
The weighted average interest rates on the DIP Credit Facility for revolving
loans were 7.4% and 10.1% in 2001 and 2000, respectively. Term loans under the
DIP Credit Facility totaled $34.4 million and $35.1 million at December 31, 2001
and 2000, respectively. At March 23, 2002 availability under the DIP Credit
Facility was $4.6 million. The DIP Credit Facility expires on the earlier of
November 17, 2002 or the completion of a Plan of Reorganization. The Company
intends to have completed a plan of reorganization by November 16, 2002. If a
plan is not completed by then, the Company will pursue an extension of or a
replacement of the current DIP facility. There can be no guarantee that this
will occur.
Net cash used by WPC's operating, investing and financing activities
for the 12 months ending December 31, 2001 totaled $7.9 million. Working capital
accounts (excluding cash, short-term borrowings and current maturities of long
term debt) provided $66.0 million of funds. Accounts receivable decreased by
$21.2 million. Inventories, valued principally by the LIFO method for financial
reporting purposes, totaled $173.1 million at December 31, 2001, a decrease of
$36.7 million from December 31, 2000. Trade payables increased by $7.3 million.
SETTLEMENT AND RELEASE AGREEMENT WITH WHX
On May 29, 2001, WPC entered into a Settlement and Release Agreement
with WHX as a compromise of disputed claims and issues, which was approved by
the Bankruptcy Court. The principal terms of the agreement were that (i) WHX
would pay $17 million to WPC; (ii) WHX agreed to purchase specified assets of
Pittsburgh-Canfield Corporation (PCC) for an aggregate purchase price of $15
million plus the assumption of certain trade payables of PCC; (iii) the Tax
Sharing Agreements between WHX and WPC would be terminated; (iv) WHX agreed not
to charge WPC or any of its subsidiaries for any funding contributions or
expense with respect to any defined benefit pension plans through and including
the earlier of the effective date of a plan of reorganization or December 31,
2002; and (v) WPC and/or any of its subsidiaries agreed to forego any claims
then existing against WHX and its subsidiaries that were not part of WPC.
SALE OF PITTSBURGH-CANFIELD COMPANY ASSETS
On June 29, 2001, the Company executed an Asset Purchase Agreement
with PCC Acquisition Co., Inc., a wholly owned subsidiary of WHX. The agreement
provided for the sale of all assets to and the assumption of certain liabilities
of PCC by PCC Acquisition Co. in exchange for $15 million. A Transition Services
Agreement and a Steel Supply Agreement were also executed to facilitate the
continuing operation of the business. PCC loaned the $15 million proceeds to
WPSC. An intercompany note receivable was recorded on PCC books.
97
NOTE B--MODIFIED LABOR AGREEMENT
The Company and the United Steelworkers of America (USWA) reached
agreement on a Modified Labor Agreement (MLA) which provides for temporary wage
reductions, immediate staff reductions, the elimination of gainsharing and other
obligations and long-term changes to health benefits that will dramatically
reduce ongoing costs. The MLA became effective October 1, 2001 and will expire
(if not previously terminated) on February 1, 2006. The Company estimates that
the MLA, together with related salary reductions, will reduce cash outlays for
wages, salaries and other benefits by more than $47 million (unaudited) during
the period through December 31, 2002. As a provision of the MLA, the Company
agreed to pay $5 million special bonus payments during each of 2005 and 2006. As
such, the Company recorded a $10 million liability in 2001 which is included in
Other Employee Benefit Liabilities.
The MLA delayed a February 2002 wage increase until December 2003.
Wage increases were also scheduled of 50 cents per hour in June 2004 and 60
cents per hour in June 2005.
The regular pension multiplier will increase to $50 per month
service for years up to 30 and $65 per month for years in excess of 30.
The MLA provides for an employee stock plan of 20% of common equity
of the reorganized company and also provides profit-sharing at a level equal to
10% of quarterly profits in 2002 and 2003 and 20% of quarterly profits
thereafter.
The MLA will remain effective only upon the union's reasonable and
continuing satisfaction that support is also being provided by other
constituents, including salaried employees, trade creditors, outside
professionals and WHX.
As a condition of the MLA, WHX agreed to provide short-term loans in
the amount of $5 million and other credit support to the Company. The agreement
also provides that the WHX pension plan may be split, upon confirmation of a
Plan of Reorganization, so as to provide for a separate pension plan covering
WPC employees and retirees, and that WHX will make a contribution of $25 million
to the new WPC pension plan.
NOTE C-- ACCOUNTING POLICIES
The accounting policies presented below have been followed in
preparing the accompanying consolidated financial statements.
BASIS OF PRESENTATION
The Company's financial statements have been prepared on a
"going-concern" basis which contemplates the continuity of operations, the
realization of assets and the payment of post petition liabilities in the
ordinary course of business. The financial statements do not include any
adjustments or reclassifications that might be necessary should the Company be
unable to continue in existence. As a result of the Company's Chapter 11 filing,
such matters are subject to significant uncertainty.
The Company's financial statements have been presented in conformity
with the AICPA's Statement of Position 90-7, "Financial Reporting By Entities In
Reorganization Under the Bankruptcy Code", issued November 9, 1990 ("SOP 90-7").
SOP 90-7 requires a segregation of liabilities subject to compromise by the
Bankruptcy Court as of the bankruptcy filing date and identification of all
transactions and events that are directly associated with the reorganization of
the Company. See Note H - Liabilities Subject to Compromise and Pre-Petition
Long Term Debt and Note N - Reorganization Items. Schedules have been filed by
the Company with the Bankruptcy Court setting forth the assets and liabilities
of the Company as of November 16, 2000, the bankruptcy filing date, as reflected
in the Company's accounting records. Differences between amounts reflected in
such schedules and claims filed by creditors are currently being investigated
and either resolved by mutual consent or adjudicated. The final amounts of such
claims are not presently determinable.
USE OF ESTIMATES
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
98
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.
EARNINGS PER SHARE
Presentation of earnings per share is not meaningful since the
Company is a wholly owned subsidiary of WHX.
BUSINESS SEGMENT
The Company is primarily engaged in one line of business and has one
industry segment, which is the making, processing and fabricating of steel and
steel products. The Company's products include hot rolled and cold rolled sheet,
and coated products such as galvanized, prepainted and tin mill sheet. The
Company also manufactures a variety of fabricated steel products including roll
formed corrugated roofing, roof deck, form deck, floor deck, culvert, bridge
form and other products used primarily by the construction, highway and
agricultural markets.
Through an extensive mix of products, the Company markets to a wide
range of manufacturers, converters and processors. The Company's 10 largest
customers (including Wheeling-Nisshin, an affiliate in which the Company has a
35.7% ownership interest) accounted for approximately 43.9% of its net sales in
2001, 38.7% in 2000 and 43.7% in 1999. Wheeling-Nisshin was the only customer to
account for more than 10% of net sales. Wheeling-Nisshin accounted for 14.6% of
net sales in 2001, 10.9% in 2000 and 16.2% in 1999. Geographically, the majority
of the Company's customers are located within a 350-mile radius of the Ohio
Valley. However, the Company 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 Company has acquired
regional facilities to service an even broader geographical area.
REVENUE RECOGNITION
Revenue from the sale of products is recognized when both risk of
loss and title have transferred to the customer, which generally coincides with
the time such products are shipped. Shipping charges billed to customers are
recorded as revenues.
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.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in first-out ("LIFO") method for substantially all
inventories. In 2001 and 2000, approximately 87% and 88%, respectively, of
inventories are valued using the LIFO method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at historical cost less
accumulated depreciation. The Company periodically evaluates property, plant and
equipment for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Given the Company's
integrated operations, asset impairment evaluations are generally done on a
group basis as that is the lowest level at which cash flows can be separately
identified.
99
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.
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.
SOFTWARE CAPITALIZATION
Costs incurred for the development or purchase of internal use
software are capitalized and are amortized over the useful lives of such
software, which is generally five years or less.
PENSIONS
The Company maintains both tax qualified defined benefit and defined
contribution pension plans. The defined benefit pension obligations are
accounted for by WHX as a multi-employer plan. As such, the Company records
pension expense based on allocations from WHX. Costs for the defined
contribution plans are being funded currently, with expense being recorded at
the time of funding.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Recognition is given in the accounts for the income tax effect of temporary
differences between the financial statement carrying amounts and the tax basis
of existing assets and liabilities using the liability method. A valuation
allowance is provided against deferred tax assets where it is considered more
likely than not that the Company will not realize the benefit of such assets.
As a member of the WHX affiliated group, the Company is joined with
WHX in the filing of consolidated federal income tax returns. Prior to 2001, tax
provisions and the related tax payments or refunds were reflected in the
Company's financial statements in accordance with a tax sharing agreement
between WHX and the Company. The tax sharing agreement generally provided that
the Company would be paid for any reduction in the combined consolidated federal
income tax liability resulting from the utilization or deemed utilization of
deductions, losses and credits from current or prior years which are
attributable to WPC or its subsidiaries. The tax sharing agreement was
terminated in 2001 effective as of January 1, 2001. As a result, the tax
provision for 2001 is intended to reflect the Company's tax position as if it
filed its own federal income tax return.
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.
NEW ACCOUNTING STANDARDS - ADOPTED IN 2001 OR EARLIER
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS Nos. 137 and 138. This Statement, as
amended, requires recognition of all derivatives at fair value as either assets
or liabilities. Changes in fair value of all derivatives are recognized in
earnings immediately unless the derivative qualifies as a hedge. The Company is
not engaged in significant activity with respect to derivative
100
instruments or hedging and the adoption effect was not material to the Company's
financial position or results of operations.
In October 2000, the Emerging Issues Task Force reached a consensus
in Issue No. 00-10 (EITF 00-10), "Accounting for Shipping and Handling Fees and
Costs". EITF 00-10 requires companies to classify all amounts billed to a
customer in a sale transaction related to shipping and handling as revenue. The
Company adopted EITF 00-10 with effect from January 1, 2000. Comparative
financial statement information for prior periods was reclassified to conform to
the requirements of EITF 00-10.
NEW ACCOUNTING STANDARDS -- TO BE ADOPTED IN FUTURE PERIODS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 141 "Business Combinations"
(SFAS No. 141), No. 142 "Goodwill and Other Intangible Assets" (SFAS No. 142)
and No. 143 "Accounting for Asset Retirement Obligations" (SFAS No. 143).
SFAS No. 141 requires that all business combinations initiated after
June 30, 2001, be accounted for under the purchase method. This Statement
establishes specific criteria for the allocation of purchase price to intangible
assets separately from goodwill for all business combinations made after June
30, 2001.
SFAS No. 142 addresses the accounting for goodwill and other intangible
assets after an acquisition. The most significant changes made by SFAS No. 142
are: 1) goodwill and intangible assets with indefinite lives will no longer be
amortized; 2) goodwill and intangible assets with indefinite lives must be
tested for impairment at least annually; and 3) the amortization period for
intangible assets with finite lives will no longer be limited to forty years.
The Company will adopt SFAS No. 142 effective January 1, 2002, as required. The
adoption of SFAS 142 is not expected to have a material impact on the Company.
SFAS No. 143 establishes a new accounting model for the recognition and
measurement of retirement obligations associated with tangible long-lived
assets. SFAS No. 143 requires that an asset retirement cost be capitalized as
part of the cost of the related long-lived asset and subsequently allocated to
expense using a systematic and rational method. The Company will adopt this
Statement effective January 1, 2003, as required. The transition adjustment
resulting from the adoption of SFAS No. 143 will be reported as a cumulative
effect of a change in accounting principle. At this time, the Company cannot
reasonably estimate the effect of the adoption of this Statement on either its
financial position or results of operations.
In August 2001, the FASB approved SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets". This Statement establishes a
single accounting model for long-lived assets to be disposed of by sale and
provides additional implementation guidance for assets to be held and used and
assets to be disposed of other than by sale. The Company will adopt the
Statement prospectively effective January 1, 2002.
NOTE D--PENSIONS, OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
PENSION PROGRAMS
The Company provides defined contribution pension programs for both
hourly and salaried employees, and prior to August 12, 1997, also provided a
defined contribution pension program for USWA-represented employees. These tax
qualified defined contribution plans provide, in the case of hourly employees,
an increasing Company contribution per hour worked based on the age of its
employees. A similar tax qualified plan for salaried employees provides defined
Company contributions based on a percentage of compensation dependent upon age
and in certain cases age and service of its employees. The Company also
established a supplemental defined benefit pension plan for its salaried
employees.
On August 12, 1997, the Company established a defined benefit pension
plan for USWA-represented employees pursuant to a new labor agreement. The plan
includes individual participant accounts of USWA-represented employees from the
hourly-defined contribution plan and merges the assets of those accounts into
the defined benefit plan.
As of December 31, 2001, $138.1 million of fully vested funds are held
in trust for benefits earned under the hourly defined contribution pension plans
and $39.8 million of fully vested funds are held in trust for benefits earned
under the salaried employees defined contribution plan. Approximately 91% of the
assets are
101
invested in equities and 9% are in fixed income investments. All plan assets are
invested by professional investment managers.
All pension provisions charged against income totaled $4.8 million,
$7.4 million, $10.3 million in 2001, 2000 and 1999, respectively.
DEFINED BENEFIT PLAN
The plan 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 WPSC Retirement Security Plan
("Retirement Security Plan").
The defined benefit pension plan covers employees represented by the
USWA. 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.
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 at
December 31, 2001 totaled $137.1 million.
In 1998 the Company established a supplemental defined benefit plan
covering its salaried employees employed as of January 31, 1998, which provides
a guaranteed minimum benefit based on years of service and 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.
In 1998, WHX merged WPC's defined benefit pension plan with those of
its wholly owned Handy & Harman ("H&H") subsidiary. The merger eliminated WPC
cash funding obligations estimated in excess of $135.0 million. WPC pension
expense is allocated by the common parent and totaled $0.9 million, $2.6 million
and $4.2 million in 2001, 2000 and 1999, respectively. Effective May 29, 2001,
the Company entered into an agreement with WHX, whereby WHX agreed not to charge
the Company for any pension expense through and including the earlier of the
effective date of a Plan of Reorganization and December 31, 2002. See Note A -
Bankruptcy and Reorganization.
OTHER POSTRETIREMENT BENEFITS
The Company sponsors postretirement benefit plans that cover both
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 pre-65
major medical coverage to which the Company contributes 50% of the insurance
premium cost. As a result of the MLA, major medical benefits are no longer
available to post-65 retirees living in an area where an HMO medicare plan is
available. The management plan provides basic medical and major medical benefits
on a non-contributory basis through age 65.
The cost of postretirement medical and life benefits for eligible
employees are 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. In 1994 the
Company began funding a qualified trust in accordance with its collective
bargaining agreement. The 1997 collective bargaining agreement provided for the
use of those funds to pay current benefit obligations and suspended additional
funding until 2002. The MLA suspends additional funding until March 31, 2005.
102
The amounts accrued at December 31, included the following components.
POSTRETIREMENT BENEFITS
OTHER THAN PENSIONS
---------------------------------------------
(DOLLARS IN THOUSANDS)
2001 2000
---- ----
Change in benefit obligation:
Benefit Obligation at beginning of year $276,192 $ 270,186
Service cost 2,180 2,088
Interest cost 20,561 19,640
Actuarial (gain) loss 19,690 4,705
Benefits paid (20,989) (20,427)
Increase due to Collective Bargaining Agreement 10,849 -
Transfer of PCC obligation to WHX plan (1,403) -
------------------- -----------------------
Benefit Obligation at December 31 307,080 276,192
------------------- -----------------------
------------------- -----------------------
Fair value of plan assets at December 31 - -
------------------- -----------------------
Benefit obligation in excess of plan assets (307,080) (276,192)
Unrecognized prior service credit (13,963) (28,731)
Unrecognized net actuarial (gain)loss (53,469) (79,934)
------------------- -----------------------
Net amount recognized at December 31 (374,512) (384,857)
------------------- -----------------------
Amounts recognized in the statement of financial position consist of:
Liabilities subject to compromise (372,071) (383,278)
Accrued benefit liability (2,441) (1,579)
------------------- -----------------------
Net amount recognized $ (374,512) $ (384,857)
=================== =======================
Net periodic costs for postretirement benefits other than pensions (principally
health care and life insurance) for employees and covered dependents.
Postretirement Benefits
Other Than Pensions
---------------------------------------------------
2001 2000 1999
(Dollars in Thousands)
Components of net periodic cost:
Service cost $ 2,180 $ 2,088 $ 2,612
Interest cost 20,561 19,640 18,918
Expected return on plan assets - - (6)
Amortization of prior service credit (3,918) (3,918) (3,918)
Recognized actuarial (gain)/loss (4,885) (7,168) (3,309)
--------------- ------------- ----------------
Total $ 13,938 $ 10,642 $ 14,297
=============== ============= ================
103
The discount rate and rate of medical cost increases used in
determining the benefit obligations were as follows.
Postretirement Benefits
Other Than Pensions
-------------------------------------
2001 2000
(Dollars in Thousands)
Discount rate 7.25% 7.75%
Medical care cost trend rate 9.5% 8.5%
For measurement purposes, medical costs are assumed to increase at
annual rates as stated above and decline gradually to 5.0% in 2007 and beyond.
The health care cost trend rate assumption has a significant effect on the costs
and obligation reported. A 1% increase in the health care cost trend rate would
result in approximate increases in the accumulated postretirement benefit
obligation of $26.0 million and net periodic benefit cost of $4.3 million. A 1%
decrease in the health care cost trend rate would result in approximate
decreases in the accumulated postretirement benefit obligation of $23.1 million
and net periodic benefit cost of $4.3 million.
401-K PLAN
Effective January 1, 1994 the Company began matching salaried
employee contributions to the 401(k) plan with shares of WHX's Common Stock.
Until November 30, 2000, the Company matched 50% of the employee's
contributions. The employer contribution was limited to a maximum of 3% of an
employee's salary. As of November 30, 2000, the Company terminated the employer
matching contribution benefit. At December 31, 2001, 2000 and 1999, the 401(k)
plan held 542,965 shares, 638,902 shares and 368,225 shares of WHX Common Stock,
respectively. Costs incurred for matching contributions amounted to
approximately $1 million in each of 2000 and 1999.
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 7.0% at December 31, 2001 and 7.7% at
December 31, 2000. At December 31, 2001, liabilities of $0.4 million and $14.4
million were included in Other Employee Benefit Liabilities and Liabilities
Subject to Compromise - Other Liabilities, respectively. At December 31, 2000
this liability was $13.1 million and was included in Liabilities Subject to
Compromise - Other Liabilities.
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, 2001, the actuarially determined liability
discounted at 7.25% covering 386 assigned retirees and dependents and 174
orphans, totaled $9.8 million. At December 31, 2000, the actuarially determined
liability discounted at 7.75% covering 421 assigned retirees and dependents and
168 orphans, totaled $9.4 million. Such liabilities are included in Liabilities
- - Subject to Compromise. In conjunction with the Chapter 11 filing, the Company
is involved in disputes over the extent of its liabilities under the Act.
104
NOTE E--INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31,
consisted of the following:
Year ended December 31,
------------------------------------------------------------
2001 2000 1999
(Dollars in thousands)
Current
Federal tax provision (benefit) $ - $ - $ (1,188)
State tax provision 17 82 118
---------------- ------------------ ----------------
Total income taxes current 17 82 (1,070)
Deferred
Federal tax provision (benefit) - 90,010 (19,653)
---------------- ------------------ ----------------
Income tax provision (benefit) $ 17 $ 90,092 $ (20,723)
================ ================== ================
Total federal and state income taxes paid in 2001, 2000 and 1999
were $0.1 million, $0.2 million and $0.3 million, respectively.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate of
35% to pretax income as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
(DOLLARS IN THOUSANDS)
Loss before taxes (172,197) (128,095) (55,208)
==================== ======================= =======================
Tax provision (benefit) at statutory rate (60,269) (44,833) (19,323)
Increase (reduction) in tax due to:
Percentage depletion - (242) (530)
Equity earnings (388) (447) (844)
State income tax net of federal effect 11 53 77
Change in valuation allowance 60,588 149,681 (428)
Settlement of prior years taxes - (23,895) -
Other miscellaneous 75 9,775 325
-------------------- ----------------------- -----------------------
Tax provision (benefit) 17 90,092 (20,723)
==================== ======================= =======================
105
The composition of deferred income tax assets and liabilities are
shown in the following table:
DECEMBER 31,
---------------------------------------------------
2001 2000
---- ----
(DOLLLARS IN MILLIONS)
ASSETS
Postretirement and postemployment employee benefits $ 133.6 $ 136.3
Operating loss carryforward (expiring in 2005 to 2021) 212.8 144.7
Minimum tax credit carryforwards (indefinite carryforward) 18.2 18.2
Provision for expenses and losses 17.5 18.2
Leasing activities 15.5 18.1
State income taxes 1.2 1.3
Miscellaneous other 2.3 4.8
----------------------- -----------------------
Deferred tax assets $ 401.1 $ 341.6
----------------------- -----------------------
LIABILITIES
Property, plant and equipment (125.7) (135.0)
Inventory (32.0) (34.5)
State income taxes (0.9) (0.9)
Miscellaneous other (0.9) (0.9)
----------------------- -----------------------
Deferred tax liability (159.5) (171.3)
Valuation allowance (241.6) (170.3)
----------------------- -----------------------
Deferred income tax asset--net $ - $ -
======================= =======================
On November 16, 2000, the Company filed for relief under Chapter 11
of the United States Bankruptcy Code. In general, the Internal Revenue Code
permits debt forgiveness in such cases to be excluded from income. However, to
the extent that income is not recognized, certain future tax attributes must be
reduced by the amount of the excluded income. Accordingly, a full valuation
allowance was recorded against the Company's net deferred tax assets in 2000 due
to uncertainties surrounding future realization and the expectation that certain
tax attributes previously recorded - namely net operating losses and tax credits
- - will not be utilized. In 2001, the valuation allowance reflected a net
increase in the amount of $71.3 million largely due to the increase in net
operating losses for which uncertainty exists as to their realizability.
During 2000, certain transactions between WPC and WHX were entered
into by the parties with the understanding that the tax sharing agreement would
not apply. This had the effect of using $24.9 million of WPC operating losses
for which the Company derived no benefit. Effective January 1, 2001, the tax
sharing agreement was terminated.
During 1994, the Company experienced an ownership change as defined
by Section 382 of the Internal Revenue Code. As a result of this event,
pre-change of control net operating losses that can be used to offset
post-change of control pre-tax income will be limited to approximately $32.0
million. Post-change of control net operating losses do not have an annual
offset limitation.
The statute of limitations has expired for years through 1994.
Federal tax returns have been examined by the Internal Revenue Service ("IRS")
through 1997. Management believes it has adequately provided for all taxes on
income.
106
NOTE F--INVENTORIES
DECEMBER 31,
--------------------------------------------------
2001 2000
---- ----
(DOLLARS IN THOUSANDS)
Finished products $ 40,295 $ 42,115
In-process 89,762 106,241
Raw materials 19,303 38,626
Other materials and supplies 18,515 23,202
----------------------- ----------------------
167,875 210,184
LIFO reserve 5,242 982
----------------------- ----------------------
$ 173,117 $ 211,166
======================= ======================
During 2001, 2000 and 1999, certain inventory quantities were
reduced, resulting in liquidations of LIFO inventories, the effect of which
increased income by approximately $4.8 million in 2001, increased income by
approximately $3.4 million in 2000 and increased income by approximately $0.2
million in 1999.
NOTE G--PROPERTY, PLANT AND EQUIPMENT
December 31,
-------------------------------------------
2001 2000
(Dollars in thousands)
Land and mineral properties $ 19,751 $ 24,909
Buildings, machinery and equipment 1,178,707 1,166,615
Construction in progress 44,355 62,130
-------------------- ------------------
1,242,813 1,253,654
Less accumulated depreciation and amortization 648,925 587,200
-------------------- ------------------
$ 593,888 $ 666,454
==================== ==================
The Company 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 2001, 2000
and 1999 depreciation under the modified units of production method was $6.6
million or 12.1% less, $1.7 million or 2.8% less and $0.7 million or 1.3% more,
respectively, than straight line depreciation.
As of December 31, 2001 and 2000, the Company had two capital leases
in the amount of $7.1 million which were classified as Other Debt in Liabilities
Subject to Compromise.
NOTE H--LIABILITIES SUBJECT TO COMPROMISE AND PRE-PETITION LONG TERM DEBT
The principal categories of claims classified as liabilities subject
to compromise under reorganization proceedings are identified below. These
liabilities include substantially all the current and non-current liabilities of
the Company as of November 16, 2000, the date the Chapter 11 petition was filed.
As discussed further in Note A, these liabilities including the maturity of debt
obligations are stayed during the Chapter 11 cases. Certain of the pre-petition
liabilities are secured by liens on the Company's property. Parties holding
secured claims may request maintenance payments during the reorganization period
should the value of liened property decline. Additional bankruptcy claims and
pre-petition liabilities may arise by reason of termination of various
contractual obligations and as certain contingent and/or disputed bankruptcy
claims are settled which may materially exceed the amounts shown below. All
amounts below may be subject to future adjustment depending on Bankruptcy Court
action, further developments with respect to disputed claims, or other events.
Liabilities subject to compromise are summarized as follows.
107
DECEMBER 31,
2001 2000
---- ----
(DOLLARS IN THOUSANDS)
Other federal, state and local taxes $ 3,573 $ 6,109
Debt, see table below 356,384 356,885
Interest accrued through November 16, 2000 13,738 13,773
Unfunded provisions related to retiree medical benefits (see Note D) 372,071 383,278
Trade payables 131,391 143,643
Other liabilities 37,961 38,494
------------- --------------
Total liabilities subject to compromise recorded at December 31: $915,118 $942,182
============= ==============
Debt included in liabilities subject to compromise at December 31,
2001 and 2000 is summarized below:
DECEMBER 31,
2001 2000
---- ----
(DOLLARS IN THOUSANDS)
Senior Unsecured Notes due 2007, 9 1/4% $ 274,266 $ 274,266
Term Loan Agreement due 2006, floating rate 75,000 75,000
Other 7,118 7,619
------------------ ---------------------
Total Long-Term Debt(1) $ 356,384 $ 356,885
================== =====================
(1) The fair value of long-term debt at December 31, 2000 was $92.9
million. Fair value of long-term debt was estimated based on trading
in the public market. No estimate of fair value is available for
December 31, 2001.
As a result of the bankruptcy filing, principal and interest
payments may not be made on pre-petition debt without Bankruptcy Court approval
or until a reorganization plan defining the repayment terms has been confirmed.
The total interest on pre-petition debt that was not paid or charged to earnings
for the period from November 17, 2000 to December 31, 2000 was $4.1 million and
for the year ended December 31, 2001 was $31.6 million. Such interest is not
being accrued since it is not probable that it will be treated as an allowed
claim. The Bankruptcy Code generally disallows the payment of post-petition
interest with respect to unsecured pre-petition claims.
9 1/4% SENIOR NOTES DUE 2007 AND TERM LOAN:
On November 26, 1997 the Company 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 Senior Notes mature on
November 15, 2007. The 9 1/4% Senior Notes were exchanged for identical notes
which were issued pursuant to an exchange offer registered under the Securities
Act of 1933, as amended. The 9 1/4% Senior Notes are unsecured obligations of
the Company, ranking senior in right of payment to all existing and future
subordinated indebtedness of the Company, and pari passu with all existing and
future senior unsecured indebtedness of the Company, 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 the Company's present and future operating subsidiaries.
On November 26, 1997 the Company entered into the Term Loan
Agreement with DLJ Capital Funding Inc., as syndication agent pursuant to which
it borrowed $75 million. The Company's obligations under the Term Loan Agreement
are guaranteed by its present and future operating subsidiaries.
The Company is in default of its obligations with respect to the 9
1/4 % Senior Notes and the Term Loan Agreement by virtue of the Chapter 11
filings and failures to pay interest when due.
108
NOTE I--LONG TERM DEBT
DECEMBER 31,
--------------------------------------------------
2001 2000
---- ----
(DOLLARS IN THOUSANDS)
Term Loan - DIP Credit Facility (See Note A) $ 34,401 $ 35,091
WHX Loan 5,000 -
Other 943 -
----------------------- ----------------------
40,344 35,091
Less portion due within one year 40,344 -
----------------------- ----------------------
Long-Term Debt $ - $ 35,091
======================= ======================
Pursuant to a memorandum of understanding (MOU), WHX provided $5.0
million in secured loans to the Company during the fourth quarter of 2001 to
increase liquidity and sustain continued operations. The loans bear interest at
the rate of 6% per annum and will mature on the earlier of (a) the substantial
consummation of a Plan of Reorganization, (b) termination of the MOU, or (c)
December 31, 2002.
INTEREST COST
Aggregate interest costs on debt and amounts capitalized during the
three years ended December 31, 2001, are as follows:
2001 2000 1999
---- ---- ----
(DOLLARS IN THOUSANDS)
Aggregate interest expense on long-term debt $ 21,611 $ 42,467 $ 40,965
Less: Capitalized interest 4,163 6,498 3,034
---------------------- ------------------- -----------------------
Interest expense $ 17,448 $ 35,969 $ 37,931
====================== =================== =======================
Interest Paid $ 15,905 $ 29,049 $ 40,485
====================== =================== =======================
NOTE J--STOCKHOLDER'S EQUITY
Changes in capital accounts are as follows:
ACCUMULATED CAPITAL IN
COMMON STOCK EARNINGS EXCESS OF PAR
SHARES AMOUNT (DEFICIT) VALUE
--------------------- ------------------- -------------------- ----------------------
(DOLLARS IN THOUSANDS)
Balance January 1, 1999 100 $0 $ (163,856) $ 335,138
Net loss - # - (34,485) -
--------------------- ------------------- -------------------- ----------------------
Balance December 31, 1999 100 0 (198,341) 335,138
Net loss - - (218,187) -
--------------------- ------------------- -------------------- ----------------------
Balance December 31, 2000 100 0 (416,528) 335,138
Net loss - - (172,214) -
--------------------- ------------------- -------------------- ----------------------
Balance December 31, 2001 100 $0 $ (588,742) $ 335,138
===================== =================== ==================== ======================
109
NOTE K--RELATED PARTY TRANSACTIONS
The Chairman of the Board of WHX is the President and sole
shareholder of WPN Corp. Pursuant to a management agreement effective as of
January 3, 1991, as amended, approved by a majority of the disinterested
directors of WHX, WPN Corp. provided certain financial, management advisory and
consulting services to WPC. Such services included, among others,
identification, evaluation and negotiation of acquisitions and divestitures,
responsibility for financing matters, review of annual and quarterly budgets,
supervision and administration, as appropriate, of all of WPC's accounting and
financial functions and review and supervision of reporting obligations under
Federal and state securities laws. In exchange for such services, WPN Corp.
received a fixed monthly fee from the Company of $208,333 for nine months in
2000, and twelve months in 1999 from the Company. On January 17, 2001 the
Company notified WHX that the Company had not received services under the
agreement since September 30, 2000 and would no longer participate under the
management agreement.
The Company regularly sells steel product to Unimast and PCC,
subsidiaries of WHX at prevailing market prices. During 2001, 2000 and 1999, the
Company shipped $2.2 million, $13.2 million and $48.4 million, respectively of
steel product to Unimast. During 2001, the Company shipped $7.0 million of steel
product to PCC. Amounts due the Company from Unimast at December 31, 2001 and
2000 were $0.1 million and $2.4 million, respectively. Amounts due the Company
from PCC at December 31, 2001 were $0.5 million. WHX provided funds for the
purchase of natural gas during 2001. At December 31, 2001 the Company owed WHX
approximately $3.4 million for gas purchased.
NOTE L--COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
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 $0.8 million, $3.4 million and $7.7 million for 2001, 2000, and
1999, respectively. The Company has previously projected spending approximately
$19.5 million in the aggregate on major environmental compliance projects
through the year 2004, estimated to be spent as follows: $9.7 million in 2002,
$6.1 million in 2003 and $3.7 million in 2004. However, due to the possibility
of unanticipated factual or regulatory developments and in light of limitations
imposed by the pending Chapter 11 cases, the amount and timing of future
expenditures may vary substantially from such estimates.
In addition, the treatment of environmental liabilities in the
pending Chapter 11 cases may differ depending on whether such liabilities are
determined to be pre-petition or post-petition liabilities of the Debtors. It is
not possible or appropriate to predict how environmental liabilities ultimately
may be classified in the Debtors' Chapter 11 cases, and the Debtors have not
attempted to distinguish between pre-petition and post-petition liabilities.
The Company has been identified as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund") or similar state statutes at several waste sites. The Company is
subject to joint and several liability imposed by Superfund on potentially
responsible parties. Due to the technical and regulatory complexity of remedial
activities and the difficulties attendant to identifying potentially responsible
parties and allocating or determining liability among them, the Company is
unable to reasonably estimate the ultimate cost of compliance with Superfund
laws. The Company believes, based upon information currently available, that the
Company's liability for clean up and remediation costs in connection with 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) the Company estimates costs to aggregate approximately $500,000.
Non-current accrued environmental liabilities totaled $19.0 million
at December 31, 2001 and $17.1 million at December 31, 2000. These accruals were
determined by the Company based on all 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 its present environmental obligations.
110
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 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 results of operations of
the Company or on its ability to reorganize. However, as further information
comes into the Company's possession, it will continue to reassess such
evaluations.
NOTE M--OTHER INCOME
DECEMBER 31,
-----------------------------------------------------------------------
2001 2000 1999
---- ---- ----
(DOLLARS IN THOUSANDS)
Interest and investment income $ 973 $ 1,531 $ 1,584
Equity income 1,274 1,810 3,358
Receivables securitization fees - (6,887) (5,876)
Other, net (1,896) 531 1,252
---------------------- ------------------- -----------------------
$ 351 $ (3,015) $ 318
====================== =================== =======================
NOTE N--REORGANIZATION ITEMS
Reorganization expenses are comprised of items of income, expense
and loss that were realized or incurred by the Company as a result of its
decision to reorganize under Chapter 11 of the Bankruptcy Code. Reorganization
professional fee expense and cash payments related to continuing operations
during 2001 and 2000 were $14.2 million and $13.9 million in 2001 and $4.1
million and $2.6 million for 2000, respectively.
Other reorganization income (expense) items are summarized below:
DECEMBER 31,
---------------------------------------------
2001 2000
---- ----
(DOLLARS IN THOUSANDS)
Gain (loss) on sale or disposal of assets $ (936) $ -
Gain from sale of PCC assets 9,818 -
Gain on settlement of intercompany accounts 367 -
Write-off of deferred financing costs related to
pre-petition credit and securitization agreements - (2,592)
------------------- -----------------------
$ 9,249 $ (2,592)
=================== =======================
NOTE O--SALE OF RECEIVABLES
In 1994, a special purpose wholly-owned subsidiary of WPSC entered
into an agreement to sell 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. and 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 of 1999, Unimast withdrew from participation in the facility. In June 2000,
the Company amended the agreement to increase the program limit to $115 million.
On September 22, 2000, the Company amended its agreement to reduce the program
limit to $105 million, to waive an Early Amortization Event through December 20,
2000 and to increase certain fees associated with the agreement during the
waiver period. The Early Amortization Event was caused by a reduction in rating
by Standard & Poors on the long-term Senior Unsecured debt. On November 17,
2000, the Receivables Facility was terminated and funds from the DIP Credit
Facility were used
111
to repurchase all receivables held by the Receivables Facility. Fees paid by
WPSC under this Receivables Facility were based upon variable rates that ranged
from 5.91% to 9.62%.
NOTE P--INFORMATION ON SIGNIFICANT JOINT VENTURES
The Company owns 35.7% of Wheeling-Nisshin. Wheeling-Nisshin had no
debt outstanding at December 31, 2001 and December 31, 2000. The Company derived
approximately 14.6% and 10.9% of its revenues from sale of steel to
Wheeling-Nisshin in 2001 and 2000, respectively. The Company received dividends
of $3.8 million from Wheeling-Nisshin in 2001 and 2000. Amounts due the Company
at December 31, 2001 totaled $1.4 million.
The Company owns 50% of Ohio Coatings Company (OCC). OCC had total
debt outstanding at December 31, 2001 and 2000 of approximately $48.2 million
and $50.0 million, respectively. Of the debt outstanding at December 31, 2001,
the Company is obligated to pay $12.1 million in the event of default by OCC.
The Company derived approximately 9.8% and 9.2% of its revenues from sale of
steel to OCC in 2001 and 2000, respectively. Amounts due the Company at December
31, 2001 totaled $31.9 million, including an advance of $12.4 million.
112
NOTE Q--SUMMARIZED COMBINED FINANCIAL INFORMATION OF THE SUBSIDIARY GUARANTORS OF THE 9"% SENIOR NOTES
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2001 2000 1999
---- ---- ----
(DOLLARS IN THOUSANDS)
Income Data
Net sales $ 835,640 $ 1,119,031 $ 1,117,744
Cost of products sold, excluding depreciation 865,613 1,053,185 993,499
Depreciation 72,551 78,859 77,724
Selling, administrative and general expense 46,977 67,891 63,201
Reorganization and professional fee expense 14,200 4,140 -
---------------- ----------------- ------------------
Operating loss (163,701) (85,044) (16,680)
Reorganization income (expense) 7,978 (2,592) -
Interest expense (20,462) (31,090) (32,542)
Other income (loss) 1,551 (6,006) (4,470)
---------------- ----------------- ------------------
Income (loss) before tax (174,634) (124,732) (53,692)
Tax provision (benefit) (1,603) 77,093 (20,183)
---------------- ----------------- ------------------
Net income (loss) $ (173,031) $ (201,825) $ (33,509)
================ ================= ==================
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2001 2000
---- ----
(DOLLARS IN THOUSANDS)
Balance Sheet Data
Assets
Current assets $ 295,775 $ 375,520
Non-current assets 624,974 699,463
----------------------- -----------------------
Total assets $ 920,749 $ 1,074,983
======================= =======================
Liabilities and stockholder's equity (deficit)
Current liabilities $ 296,225 $ 254,575
Non-current liabilities 909,723 926,840
Stockholder's equity (deficit) (285,199) (106,432)
----------------------- -----------------------
Total liabilities and stockholder's equity (deficit) $ 920,749 $ 1,074,983
======================= =======================
113
NOTE R--SUBSEQUENT EVENTS
To offset operating losses and provide additional liquidity, the
Company in January 2002, negotiated additional wage deferrals through March 31,
2002. The agreement was contingent on the approval and completion of loans in
the amount of $7 million and $5 million from the States of Ohio and West
Virginia, respectively. The agreement was also contingent on additional
financial support from WHX. WHX provided $10 million in cash as prepayment for
steel products to be shipped to steel consuming wholly owned subsidiaries of WHX
over the subsequent four months. The wage and salary deferrals are estimated to
reduce cash payments by approximately $5 million through March 31, 2002.
NOTE S--QUARTERLY INFORMATION (UNAUDITED)
Financial results by quarter for the two fiscal years ended December 31, 2001
and 2000 are as follows:
NET EARNINGS
GROSS INCOME (LOSS)
NET SALES PROFIT (LOSS) PER SHARE
--------- ------ ------ ---------
(Dollars in thousands)
2001
1st Quarter 202,706 (17,115) (59,986) *
2nd Quarter 207,941 (14,099) (41,532)
3rd Quarter 224,301 (3,104) (41,180)
4th Quarter 200,692 3,893 (29,516)
2000
1st Quarter 290,202 39,045 (5,130) *
2nd Quarter 304,796 40,805 33,949
3rd Quarter 281,917 18,279 (21,371)
4th Quarter 242,116 (33,484) (225,635)
Earnings per share are not meaningful because the Company is a
wholly-owned subsidiary of WHX.
In the fourth quarter 2000, the Company adopted EITF 00-10 (See Note
C). As a result, the Company reclassified previously reported information by
increasing sales and cost of sales, with no effect on income. Amounts
reclassified in the first, second and third quarters of 2000 were $10.6 million,
$11.1 million and $9.4 million, respectively.
114