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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
-------------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _____________________
For Quarter Ended March 31, 2003 Commission File Number 1-2394
WHX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3768097
(State of Incorporation) (IRS Employer
Identification No.)
110 East 59th Street
New York, New York 10022
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 212-355-5200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act). Yes / / No /X/
The number of shares of Common Stock issued and outstanding as of May 1, 2003
was 5,405,856.
1
WHX CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
2003 2002
- --------------------------------------------------------------------------------------------------
(IN THOUSANDS)
Net sales $ 81,000 $ 92,823
Cost of goods sold 66,949 75,191
-------- --------
Gross profit 14,051 17,632
Selling, general and administrative expenses 21,986 17,019
-------- --------
Income (loss) from operations (7,935) 613
-------- --------
Other:
Interest expense 5,017 8,803
Gain on early retirement of debt 1,033 29,016
Other income (expense) (1,508) 1,238
-------- --------
Income (loss) from continuing operations before taxes (13,427) 22,064
Tax benefit (4,579) (787)
-------- --------
Income (loss) from continuing operations (8,848) 22,851
-------- --------
Discontinued operations:
Income from discontinued operations - net of tax -- 1,851
-------- --------
-- 1,851
-------- --------
Income (loss) before cumulative effect of accounting change (8,848) 24,702
Cumulative effect of accounting change (Note 4) -- (44,000)
-------- --------
Net loss $ (8,848) $(19,298)
======== ========
Dividend requirement for preferred stock $ 4,856 $ 4,775
======== ========
Net loss applicable to common stockholders $(13,704) $(24,073)
======== ========
Basic per share of common stock
Income (loss) from continuing operations net of preferred dividends $ (2.57) $ 3.42
Discontinued operations -- 0.35
Cumulative effect of accounting change -- (8.32)
-------- --------
Net loss per share $ (2.57) $ (4.55)
======== ========
Diluted per share of common stock
Income (loss) from continuing operations $ (2.57) $ 2.17
Discontinued operations -- 0.18
Cumulative effect of accounting change -- (4.18)
-------- --------
Net loss per share $ (2.57) $ (1.83)
======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
WHX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
MARCH 31, DECEMBER 31,
2003 2002
- -----------------------------------------------------------------------------------
(Dollars and shares in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 99,851 $ 18,396
Short term investments 3,660 205,275
Trade receivables - net 49,659 43,540
Inventories 69,170 68,921
Other current assets 27,105 15,412
--------- ---------
Total current assets 249,445 351,544
Advances to WPC 7,033 7,458
Note receivable - WPC 32,199 31,959
Property, plant and equipment at cost, less
accumulated depreciation and amortization 107,462 107,590
Goodwill and other intangibles 215,343 215,426
Intangibles - pension asset 40,270 40,270
Assets held for sale 12,535 11,751
Prepaid pension asset 22,355 26,385
Deferred taxes - non-current 29,170 24,315
Other non-current assets 16,524 17,690
--------- ---------
$ 732,336 $ 834,388
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 54,891 $ 60,172
Accrued liabilities 19,839 20,924
Short-term debt -- 107,857
Restructuring 1,283 5,424
Deferred income taxes - current 6,432 6,432
Interest payable 5,104 2,514
Payroll and employee benefits 6,496 2,776
--------- ---------
Total current liabilities 94,045 206,099
Long-term debt 267,468 249,706
Other employee benefit liabilities 8,786 8,784
Loss in excess of investment in WPC 60,982 60,667
Additional minimum pension liability 93,728 93,728
Other liabilities 1,553 1,543
--------- ---------
526,562 620,527
Stockholders' Equity:
Preferred stock - $.10 par value; authorized 10,000
shares; issued and outstanding: 5,523 shares 552 552
Common stock - $.01 par value; authorized 60,000
shares; issued and outstanding: 5,406 shares 54 54
Accumulated other comprehensive loss (35,014) (35,775)
Additional paid-in capital 556,009 556,009
Accumulated earnings (deficit) (315,827) (306,979)
--------- ---------
--------- ---------
Total stockholders' equity 205,774 213,861
--------- ---------
$ 732,336 $ 834,388
========= =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
WHX CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2003 2002
- ---------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,848) $ (19,298)
Less: Income from discontinued operations -- 1,851
--------- ---------
Net loss from continuing operations and
cumulative effect of accounting change (8,848) (21,149)
Items not affecting cash from operating activities:
Cumulative effect of accounting change -- 44,000
Depreciation and amortization 4,218 5,048
Other postretirement benefits 63 48
Gain on early retirement of debt (1,033) (29,011)
Deferred income taxes (4,855) (391)
Loss (gain) on asset dispositions 13 (2)
Pension expense 4,030 1,900
Equity loss (income) in affiliated companies 16 (121)
Decrease (increase) in working capital elements,
net of effect of acquisitions:
Trade receivables (6,119) (11,492)
Inventories (249) 207
Short term investments-trading 201,615 (31,735)
Investment account borrowings (107,857) 99,018
Other current assets 6,248 (9,837)
Other current liabilities (4,123) 9,921
Other items-net 991 (294)
--------- ---------
Net cash provided by operating activities 84,110 56,110
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts from WPC 500 --
Acquisitions -- (737)
Purchase of aircraft (19,106) --
Plant additions and improvements (3,439) (1,252)
Proceeds from sales of assets 457 2
--------- ---------
Net cash used in investing activities (21,588) (1,987)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt retirements - net -- (4,062)
Long-term debt proceeds 23,475 --
Cash paid on early extinguishment of debt (4,542) (50,632)
--------- ---------
Net cash (used in)/provided by financing activities 18,933 (54,694)
--------- ---------
Net cash provided/(used) by continuing operations 81,455 (571)
Net cash provided by discontinued operations -- 1,570
Cash and cash equivalents at beginning of period 18,396 7,789
--------- ---------
Cash and cash equivalents at end of period $ 99,851 $ 8,788
========= =========
SEE NOTES TO CONSENSED CONSOLIDATED FINANCIAL STATEMENTS
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
- -------
The unaudited condensed consolidated financial statements included
herein have been prepared by the Company. In the opinion of management, the
interim financial statements reflect all normal and recurring adjustments
necessary to present fairly the consolidated financial position and the results
of operations and changes in cash flows for the interim periods.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. This quarterly report on Form 10-Q
should be read in conjunction with the Company's audited consolidated financial
statements contained in Form 10-K for the year ended December 31, 2002. The
results of operations for the three months ended March 31, 2003 are not
necessarily indicative of the operating results for the full year.
The condensed 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
including Wheeling-Pittsburgh Steel Corporation ("WPSC" and together with WPC
and its other subsidiaries, the "WPC Group") filed a petition seeking
reorganization under Chapter 11 of Title 11 of the United States Bankruptcy Code
(see Note 1). 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
March 31, 2003 and December 31, 2002 do not include any of the assets or
liabilities of WPC, and the accompanying condensed consolidated statement of
operations and the condensed consolidated statement of cash flows for the
quarter ended March 31, 2003 and 2002 exclude the operating results of WPC.
The results from the 2002 period have been restated in accordance
with FASB Statement No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"), and FASB Statement No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." ("SFAS 145"). Accordingly, the Income Statements, Balance Sheets
and Cash Flows of Unimast Incorporated have been classified as discontinued
operations for the 2002 period and gains on early retirement of debt have been
classified as income from continuing operations for all periods presented.
NATURE OF OPERATIONS
- --------------------
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 business is Handy & Harman ("H&H"), a
diversified manufacturing company whose strategic business units encompass three
segments: precious metal, wire & tubing, and engineered materials. WHX also
owns Pittsburgh-Canfield Corporation ("PCC"), a manufacturer of
electrogalvanized products used in the construction and appliance industries. In
July 2002, the Company sold its wholly owned subsidiary Unimast Incorporated
("Unimast"), a leading manufacturer of steel framing and other products for
commercial and residential construction. As a result, Unimast has been
classified as a discontinued operation for the 2002 period. The transaction
closed on July 31, 2002. WHX's other business consists of Wheeling-Pittsburgh
Corporation ("WPC") and six of its subsidiaries including Wheeling-Pittsburgh
Steel Corporation ("WPSC"), a vertically integrated manufacturer of value-added
and flat rolled steel products (see Note 1). WPSC, together with WPC and its
other subsidiaries shall be referred to herein as the "WPC Group." 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."
NOTE 1 - 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
5
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. On November 15, 2002, the
Bankruptcy Court approved a motion to amend the DIP Credit Agreement to reduce
the revolving loans, swing loans and letter of credit to a maximum aggregate of
$160 million and to make certain other related changes to the agreement. 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 $147.3 million and $135.5 million at March 31, 2003 and
December 31, 2002 respectively. Term Loans under the DIP Credit Facility totaled
$35.4 million and $35.2 million at March 31, 2003 and December 31, 2002,
respectively. Letters of credit outstanding under the facility totaled $2.8
million at March 31, 2003. At March 31, 2003, net availability under the DIP
Credit Facility was $6.8 million. The DIP Credit Facility currently expires on
the earlier of May 17, 2003 or the completion of a Plan of Reorganization.
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
owns a $32.0 million participation interest in the Term Loan discussed above and
holds other claims against WPC and WPSC totaling approximately $7.0 million. The
recognition of the WPC Group's net loss of $176.6 million, in the year 2000,
eliminated the investment's carrying value of $136.8 million. In November 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.
During the period November 17, 2000 through March 31, 2003, the WPC
Group incurred cumulative net losses of $317.0 million. Pursuant to the terms to
the amended Plan of Reorganization, WHX has conditionally agreed to contribute
$20.0 million to the WPC Group (see discussion below pertaining to WHX
Contributions). As a result of the Company's probable obligation to fund $20.0
million to WPC Group, the Company recorded a $20 million charge as Equity in
loss of WPC in the fourth quarter of 2002.
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.
The Settlement Agreement provided, in part, for (1) the payment by
WHX to WPC of $32 million; (2) the exchange of releases between the WPC Group
and the WHX Group; (3) the acquisition by WHX or its designee of certain assets
of Pittsburgh-Canfield Corporation ("PCC"), plus the assumption of certain trade
payables, subject to certain terms and conditions (WHX recorded $5.4 million as
the fair value of the net assets of PCC.); (4) the termination of the Tax
Sharing Agreements between WHX and WPC; (5) WHX to 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; and (6) the final settlement of all inter-company receivables and
liabilities between the WHX Group and the WPC Group (except for commercial trade
transactions), including the liability for redeemable stock. Such transactions,
6
other than the acquisition of certain assets of PCC, all occurred effective May
29, 2001. The acquisition of certain assets of PCC closed on June 29, 2001. The
PCC agreement included a one-year repurchase option for the seller. The
repurchase option expired unexercised on June 29, 2002.
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 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 $5.0 million
of liquidity support referred to above, during the period from February 1, 2002
through March 31, 2002, (the conditions were not met and 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, among
other things, a confirmed WPSC Plan of Reorganization (Item 3 has since been
superceded by the WHX Contributions described below). Through March 31, 2003,
WHX had advanced $5.0 million of the loans and up to $5.5 million of financing.
At March 31, 2003, the outstanding balance of these secured advances was $5.0
million plus interest of $0.4 million and $1.6 million, respectively.
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 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 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 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 $5.0 million loan from the State of West Virginia, a $7.0 million
loan and a $0.2 million grant from the State of Ohio, a $10.0 million advance by
the WHX Group for future steel purchases (all of which were delivered before
June 30, 2002) and additional wage and salary deferrals from WPSC union and
salaried employees. At March 31, 2003, the balance outstanding with the State of
West Virginia was $5.0 million, and $7.0 million with the State of Ohio.
On September 23, 2002, WPC announced that the Royal Bank of Canada
("RBC") had filed on its behalf an application with the Emergency Steel Loan
Guarantee Board ("ESLGB") for a $250 million federal loan guarantee. An
affiliate of RBC has agreed to underwrite the loan if the guarantee is granted.
On February 28, 2003, the ESLGB initially rejected the application. WPC and RBC,
however, amended and supplemented the application and it was conditionally
approved on March 26, 2003. The approval of the guaranty is subject to the
satisfaction of various conditions on or before June 30, 2003 including, without
limitation, resolution of the treatment of the WHX Pension Plan that is
acceptable to and approved by the Pension Benefit Guaranty Corporation ("PBGC"),
confirmation of a plan of reorganization for the WPC Group, and the execution of
definitive agreements satisfactory in form and substance to the ESLGB.
The amended RBC application contained a business plan that assumed a
confirmed Chapter 11 Plan of Reorganization ("POR") for the WPC Group. As part
of the POR, the Company has agreed conditionally to make certain contributions
(the "WHX Contributions") to the reorganized company. Under the WHX
contributions, the Company would forgo repayment of its claims against the
debtors of approximately $39 million and, additionally, would contribute to the
reorganized company $20 million of cash, for which the Company would receive a
note in the amount of $10 million. The WHX Contributions would be subject to a
number of conditions including, without limitation, that (1) the POR be
satisfactory to the Company in its sole and absolute discretion, and (2) the
7
Company's dispute with the PBGC, described below, be resolved to the
satisfaction of the Company in its sole and absolute discretion. As a result of
the Company's probable obligation to fund $20.0 million to WPC, the Company
recorded a $20.0 million charge as Equity in loss of WPC in the fourth quarter
of 2002.
On March 6, 2003, the Pension Benefit Guaranty Corporation ("PBGC")
issued its Notice of Determination ("Notice") and on March 7, 2003, the PBGC
published its Notice and filed a Summons and Complaint ("Complaint") in United
States District Court for the Southern District of New York seeking the
involuntary termination of the WHX Pension Plan ("WHX Pension Plan"). The PBGC
stated in its Notice that it took this action because of its concern that
"PBGC's possible long-run loss with respect to the WHX Pension Plan may
reasonably be expected to increase unreasonably if the WHX Pension Plan is not
terminated." WHX filed an answer to this complaint on March 27, 2003, contesting
the PBGC's action. The PBGC's action to terminate the WHX Pension Plan was taken
following the initial rejection on February 28, 2003 by the ESLGB of RBC's
application for a $250 million federal loan guaranty. The PBGC has been notified
of the loan guaranty approval on March 26, 2003. As described above, obtaining
an acceptable resolution of the treatment of the WHX Pension Plan is a condition
to the loan guaranty. If an acceptable resolution is not obtained on or before
June 30, 2003, then a condition to the loan guaranty shall not have been
satisfied. If the loan guaranty is not granted it is unlikely that the present
POR, filed with the Bankruptcy Court on December 29, 2002, will be confirmed.
Furthermore, it is doubtful that an alternative plan could be confirmed in a
reasonable time frame (although WPC management has indicated that it would
attempt to pursue such an alternate plan). In either case there can be no
assurance as to the future of the WPC Group. In a press release, the PBGC
contends that the WHX Pension Plan has roughly $300 million in assets to cover
more than $443 million in benefit liabilities resulting in a funding shortfall
of approximately $143 million (without accounting for plant shutdown benefits).
Furthermore, in a press release, the PBGC contends that plant shutdown
liabilities, if they were to occur, could be as much as $378 million. WHX
disputes the PBGC's calculation of liabilities and shutdown claims since the
actual amount of these liabilities may be substantially less, based on
alternative actuarial assumptions. However, there can be no assurance that WHX's
assertions will be accepted. If the PBGC's action is successful and the WHX
Pension Plan is terminated, WHX expects that it will be subject to a claim by
the PBGC of at least $143 million. WHX intends to vigorously defend itself
against such claims, but there can be no assurance that WHX would prevail. If
the WHX Pension Plan were terminated, WHX believes it is unlikely that the
present Plan of Reorganization, filed with the Bankruptcy Court filed on
December 29, 2002, will be confirmed. Furthermore, it is doubtful that an
alternative plan could be confirmed in a reasonable time frame (although WPC
management has indicated that it would attempt to pursue such an alternate
plan). In either case there can be no assurance as to the future of the WPC
Group. If a cessation of operations of the WPC Group or termination of the Plan
were to occur, the consequential cash funding obligations to the WHX Pension
Plan would have a material adverse impact on the liquidity, financial position
and capital resources of the Company.
Management of the Company cannot at this time determine with
certainty the ultimate outcome of the Chapter 11 proceedings or the related PBGC
action; however it is possible that the following outcomes could result, whether
upon the confirmation of the POR as submitted or as it may be amended or
modified, or otherwise:
a) The WPC Group could reorganize, and its creditors could receive a
portion of their claims in cash or in stock of WPC or WPSC. In such
a case, the WHX Group would have little or no future ownership in or
involvement with the WPC Group (except as a creditor) and the WHX
Group's future cash obligations to or on behalf of the WPC Group
would be minimal to none (other than the WHX Contributions, referred
to above).
b) The PBGC could prevail in its actions to terminate the WHX
Pension Plan, which could result in a partial or complete
liquidation of the WPC Group. If such liquidation were to occur, the
Company could be responsible for significant early retirement
pension benefits. In such a case, the PBGC would likely seek to
enforce claims for shutdown liabilities against the Company in
addition to the $143 million claims for accumulated benefit
liabilities referred to above. The PBGC asserts that shutdown claims
arising from a complete liquidation of the WPC Group would result in
claims against the Company of as much as $378 million. A shutdown of
only a portion of the WPC Group's facilities would generate shutdown
liabilities in a lower amount. WHX disputes the PBGC's assertion
with regard to each of their claims. If the PBGC were to prevail
against the Company, the PBGC could file a claim in an amount from
$143 million to $521 million, which the Company would be unable to
fund.
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
8
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 was 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. WPSC's total OPEB Obligation at January 1,
2003 is estimated to be $314.1 million. WHX has estimated that approximately 85%
of employees and retirees entitled to such OPEB Obligations are represented by
the USWA.
WHX's liability for OPEB Obligations 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. If the POR is
confirmed, WHX believes that its liability for the OPEB Obligations would be
eliminated.
NOTE 2 - DISCONTINUED OPERATIONS
- --------------------------------
On July 31, 2002, the Company sold the stock of Unimast, its
wholly-owned subsidiary, to Worthington Industries, Inc. for $95.0 million in
cash. Under the terms of the agreement, the buyer assumed certain debt of
Unimast. Net cash proceeds from the sale, after escrow of $2.5 million, closing
costs, transaction fees, employee related payments, and other costs and expenses
were approximately $85.0 million. The Company has applied these proceeds in
accordance with the terms of the Indenture for the Company's 10 1/2% Senior
Notes.
As a result of the sale, the Condensed Consolidated Financial
Statements and related Notes for the periods presented herein reflect Unimast as
a discontinued operation.
Operating results of discontinued operations were as follows:
THREE
MONTHS
ENDED
MARCH 31,
2002
-------------
(in thousands)
Net sales $ 55,162
Operating income 3,366
Interest/other income (expense) (291)
Income taxes 1,224
Net income 1,851
NOTE 3 - BUSINESS RESTRUCTURING CHARGES
- ---------------------------------------
During April 2002, the Company's wholly owned subsidiary, Handy &
Harman, decided to exit certain of its precious metal activities. The affected
product lines were manufactured at H&H's Fairfield, CT and East Providence, RI
facilities. The decision to exit these operating activities resulted in a
restructuring charge of $12.0 million in the year ended December 31, 2002. This
charge includes $6.6 million in employee separation expenses (approximately 251
employees, substantially all of which were terminated by March 31, 2003); $0.6
million of contractual obligations, and $4.8 million in costs to close the
facilities, including refining charges for inventory remaining after operations
ceased.
As of March 31, 2003, the Company has received $8.5 million for the
sale of certain equipment associated with these facilities. Included in the
Company's Balance Sheet as Assets Held For Sale at March 31, 2003 and December
31, 2002, is $11.8 million related to the Fairfield, CT property. The sale of
this property is expected to occur in 2003.
9
The following table represents the activity of the restructuring
reserve:
Reserve Reserve
Balance Balance
December 31, Cost March 31,
2002 Incurred Adjustment 2003
-------------------------------------------------
(in thousands)
Employee separation and related costs $ 1,358 $ (607) $ (476) $ 275
Facility closing and refining costs
1,117 (1,622) 505 --
Contractual obligations
137 (13) (74) 50
------- ------- ------- -------
$ 2,612 $(2,242) $ (45) $ 325
======= ======= ======= =======
In September 2002, the Company decided to exit certain of its
stainless steel wire activities. The affected operations are at H&H's facilities
in Liversedge, England and Willingboro, NJ. The decision to exit these operating
activities resulted in restructuring charges of $8.0 million in the second half
of 2002. The components of the restructuring charges are: $2.8 million in
employee separation expenses (approximately 121 employees, substantially all of
which were terminated by March 31, 2003), $4.8 million for the write-down of
production supplies and consumables and facility closing costs, and $0.4 million
in contractual obligations. The Company anticipates cash proceeds in the range
of $3.0 million to $4.0 million on the sale of property, plant and equipment.
Additional employee separation accruals including the settlement of certain
pension obligations will be made in 2003 in the range of $1.0 million to $1.5
million as well as additional costs of approximately $0.3 million to maintain
the employee base until the restructuring is complete.
The following table represents the activity of this restructuring
reserve:
Reserve Reserve
Balance Balance
December 31, Cost March 31,
2002 Incurred Adjustment 2003
----------------------------------------------------
(in thousands)
Employee separation and related costs $ 1,197 $ (765) $ (76) $ 356
Facility closing costs 1,241 (1,134) 351 458
Contractual obligations 374 -- (230) 144
------- ------- ------- -------
$ 2,812 $(1,899) $ 45 $ 958
======= ======= ======= =======
It is estimated that substantially all of the accrued restructuring
costs for the precious metals and stainless wire activities at March 31, 2003,
will be paid by the end of the second quarter 2003.
NOTE 4 - ACCOUNTING CHANGES AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- -------------------------------------------------------------------------
The Company adopted the provisions of Statement of Financial
Standards 142, "Goodwill and Other Intangible Assets" ("SFAS 142") effective
January 1, 2002. As a result of the adoption of SFAS 142, the Company recorded a
$44.0 million non-cash goodwill impairment charge related to the H&H Wire Group
in the first quarter of 2002. This charge was reported as a cumulative effect of
an accounting change. The Company recorded this charge because the fair value of
this reporting unit, as determined by estimated cash flow projections, was less
than the reporting unit's carrying value.
10
The changes in the carrying amount of goodwill for the three months ended March
31, 2003 were as follows:
(in thousands)
Precious Wire & Engineered
Metals Tubing Materials Total
--------- --------- ---------- ----------
Balance as of January 1, 2003 $ 106,971 $ 60,464 $ 47,150 $ 214,585
Pre acquisition foreign NOL utilized -- (74) -- (74)
--------- --------- --------- ---------
Balance at March 31, 2003 $ 106,971 $ 60,390 $ 47,150 $ 214,511
========= ========= ========= =========
As of March 31, 2003, the Company had $0.8 million of other
intangible assets, which will continue to be amortized over their remaining
useful lives ranging from 3 to 17 years.
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement No. 143, "Accounting for Asset Retirement Obligation" ("SFAS
143"). SFAS 143 requires that obligations associated with the retirement of a
tangible long-lived asset 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. WHX adopted the provisions of SFAS 143 on
January 1, 2003 and its adoption did not have a significant effect on the
Company's financial statements.
In October 2001, the FASB issued Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". 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 adopted the provisions of SFAS 144 as of
January 1, 2002.
On July 31, 2002, WHX sold the stock of Unimast, its wholly-owned
subsidiary for $95.0 million. As a result of this transaction, Unimast was
accounted for as a discontinued operation in accordance with SFAS 144. (see Note
2).
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 sets forth
various modifications to existing accounting guidance which prescribes the
conditions which must be met in order for costs associated with contract
terminations, facility consolidations, employee relocations and terminations to
be accrued and recorded as liabilities in financial statements. WHX adopted the
provisions of SFAS 146, as related to exit or disposal activities as of January
1, 2003, and its adoption did not have a significant effect on the Company's
financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition to SFAS No. 123's fair value method of accounting for
stock-based employee compensation. While the Statement does not amend SFAS No.
123 to require companies to account for employee stock options using the fair
value method, the disclosure provisions of SFAS No. 148 are applicable to all
companies with stock-based employee compensation, regardless of whether they
account for that compensation using the fair value method of SFAS No. 123 or the
intrinsic value method of APB No. 25, "Accounting for Stock Issued to
Employees." The Company has adopted the disclosure provisions of SFAS 148. Had
compensation expense for the Company's stock option plans been determined based
on the fair value at the grant date for awards under these plans, consistent
with the methodology prescribed under SFAS No. 148, the Company's net income
(loss) and earnings (loss) per share would have approximated the pro forma
amounts indicated below:
11
Three Monthe Ended
March 31, 2003 March 31, 2002
---------------------------------
(in thousands - except per share)
Reported net income (loss) from continuing operations $ (8,848) $ 22,851
Reported basic earnings (loss) per share $ (2.57) $ 3.42
Reported diluted earnings (loss) per share $ (2.57) $ 2.17
Adjustment to compensation expense for stock-based awards - net of tax $ (127) $ (108)
Pro forma net income (loss) $ 8,975 $ 22,743
Pro forma basic earnings (loss) per share $ (2.59) $ 3.40
Pro forma diluted earnings (loss) per share $ (2.59) $ 2.16
The weighted-average fair value of each stock option included in the
preceding pro forma amounts was estimated using the Black-Scholes option-pricing
model and is amortized over the vesting period of the underlying options.
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities," which addresses consolidation by
a business of variable interest entities in which it is the primary beneficiary.
The Interpretation is effective immediately for certain disclosure requirements
and variable interest entities created after January 31, 2003, and in fiscal
2004 for all other variable interest entities. This Interpretation will not have
a material impact on the Company's financial statements.
NOTE 5 - EARNINGS PER SHARE
- ---------------------------
The computation of basic earnings per common share is based upon the
average number of shares of Common Stock outstanding. In the computation of
diluted earnings per common share in the three-month period ended March 31,
2003, the conversion of preferred stock, redeemable common stock and the
exercise of options would have had an anti-dilutive effect. In the computation
of diluted earnings per common share in the three-month period ended March 31,
2002, the exercise of options would have had an anti-dilutive effect. A
reconciliation of the income and shares used in the computation follows:
12
RECONCILIATION OF INCOME AND SHARES IN EPS CALCULATION
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
For the Three Months Ended March 31, 2003
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
Net loss from continuing operations $ (8,848)
Less: Preferred stock dividends 4,856
--------
Basic and Diluted EPS
Loss from continuing operations
applicable to common stockholders $(13,704) 5,339 $ (2.57)
======== ======== ========
For the Three Months Ended March 31, 2002
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
Net income from continuing operations $ 22,851
Less: Preferred stock dividends 4,775
--------
BASIC EPS
Income from continuing operations
available to common stockholders 18,076 5,291 $ 3.42
Effect of diluted securities
Convertible preferred stock 4,775 5,177
Redeemable common stock -- 72
--------- ------
DILUTED EPS
Income from continuing operations
available to common stockholders $ 22,851 10,540 $ 2.17
======== ====== ======
Outstanding stock options for common stock granted to officers,
directors, key employees and others totaled 1.9 million at March 31, 2003.
PREFERRED STOCK DIVIDENDS
At March 31, 2003, dividends in arrears to Series A and Series B
Convertible Preferred Shareholders were $20.9 million and $27.7 million,
respectively. Presently management believes that it is not likely that the
Company will be able to pay these dividends in the foreseeable future.
REDEEMABLE COMMON STOCK
At December 31, 2000 certain present and former employees of the WPC
Group held, through an Employee Stock Ownership Plan ("ESOP"), 81,502 shares of
common stock of WHX. These employees received such shares as part of the 1991
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
$45 or, upon qualified retirement, $60 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 at December 31, 2001. As a result
of the Settlement Agreement discussed in Note 1, the liability for redeemable
common shares was assumed by WPC, accordingly participants will sell their
shares to WPC. Approximately 66,700 shares of Common Stock of WHX were held by
the ESOP at March 31, 2003.
13
NOTE 6 - COMPREHENSIVE INCOME (LOSS)
- ------------------------------------
Comprehensive income (loss) for the three-months ended March 31,
2003 and 2002 is as follows:
(IN THOUSANDS) THREE MONTHS ENDED
MARCH 31,
2003 2002
--------- ---------
Net loss $ (8,848) $(19,298)
Other comprehensive income (loss):
Foreign currency translation adjustments 761 (306)
-------- --------
Comprehensive income (loss) $ (8,087) $(19,604)
======== ========
Accumulated other comprehensive income (loss) balances as of March 31, 2003 and
December 31, 2002 were comprised as follows:
(in thousands)
March 31, 2003
- --------------------------------------------
Balance on January 1, 2003 $ (35,775)
Foreign currency translation adjustment 761
---------
Balance on March 31, 2003 $ (35,014)
==========
December 31, 2002
- --------------------------------------------
Balance on January 1, 2002 $ (2,268)
Foreign currency translation adjustment 1,241
Minimum pension liability adjustment - net of tax (34,748)
--------
Balance on December 31, 2002 $(35,775)
=========
NOTE 7 - SHORT TERM INVESTMENTS
- -------------------------------
Net realized and unrealized losses on trading securities included in
other income (expense) for the first quarter of 2003 and 2002 were losses of
$0.9 million and $0.3 million, respectively.
NOTE 8 - INVENTORIES
- --------------------
Inventories at March 31, 2003 and December 31, 2002 are comprised as
follows:
(in thousands) March 31, December 31,
2003 2002
--------- -------------
Finished products $ 16,837 $ 13,067
In-process 10,301 11,291
Raw materials 18,690 19,925
Fine and fabricated precious metal in various stages of completion 23,342 25,322
-------- --------
69,170 69,605
LIFO reserve -- (684)
-------- --------
$ 69,170 $ 68,921
======== ========
14
The operating loss for the three-months ended March 31, 2003,
includes a non-cash charge resulting from the lower of cost or market adjustment
on precious metal inventories in the amount of $1.3 million.
NOTE 9 - LONG-TERM DEBT
- -----------------------
The Company's long-term debt consists of the following debt
instruments:
(in thousands) March 31, December 31,
2003 2002
--------- ------------
Senior Notes due 2005, 10 1/2% $104,791 $110,504
Handy & Harman Senior Secured Credit Facility 155,177 130,465
Other 7,500 8,737
-------- --------
267,468 249,706
Less portion due within one year -- --
-------- --------
Total long-term debt $267,468 $249,706
======== ========
In the three months ended March 31, 2003, the Company purchased and
retired $5.7 million aggregate principal amount of 10 1/2% Senior Notes in the
open market for $4.5 million. After the write off of $0.2 million of deferred
debt related costs, the Company recognized a pre-tax gain of $1.0 million. In
the quarter ended March 31, 2002, the Company purchased and retired $82.5
million aggregate principal amount of the 10 1/2% Senior Notes in the open
market for $50.6 million. After the write off of deferred debt related costs,
the Company recognized a pre-tax gain of $29.0 million. Subsequent to March 31,
2003, the Company purchased and retired $3.2 million aggregate principal amount
of the 10 1/2% Senior Notes in the open market for $2.5 million.
As discussed in Note 1, on March 6, 2003, the PBGC issued its Notice
and on March 7, 2003 published its Notice and filed a Summons and Complaint in
the United States District Court for the Southern District of New York seeking
to terminate the WHX Pension Plan ("WHX Pension Plan"). On March 11, 2003
H&H informed its lenders that the PBGC action may be an occurrence that
would preclude H&H from making certain representations to the lenders (as
required by the Facilities) in connection with future borrowings. H&H has
elected not to borrow any additional funds against the Facilities until such
time as the PBGC action is resolved. H&H believes that it has adequate cash
on hand, or available from WHX should the need arise, to meet its operating
needs for the next twelve months. If the PBGC action is upheld and the WHX
Pension Plan is terminated, such termination would constitute an event of
default under the Facilities. If H&H is unable to cure the default or obtain
an amendment to the Facilities, it could lead to a cancellation of the
Facilities and an acceleration of the outstanding borrowings. If the lenders
were to accelerate the obligations under the Facilities it would have a material
adverse effect upon the liquidity, financial position and capital resources of
H&H. In addition the acceleration of the H&H obligations would be an
event of default under WHX's 10 1/2% Senior Notes. Upon the occurrence of an
event of default, the trustee or the holders of 25% in principal amount of the
then outstanding notes could accelerate the 10 1/2% Senior Notes. Any such
acceleration would have a material adverse effect upon the liquidity, financial
position and capital resources of WHX.
NOTE 10- CONTINGENCIES
- ----------------------
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"). 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.
15
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 SEC, however, has authority to review any issues on its
own accord. WHX has filed its opposition brief. The SEC heard oral arguments on
the case on April 24, 2003.
PBGC ACTION
On March 6, 2003, the Pension Benefit Guaranty Corporation ("PBGC")
issued its Notice of Determination ("Notice") and on March 7, 2003, the PBGC
published its Notice and filed a Summons and Complaint ("Complaint") in United
States District Court for the Southern District of New York seeking the
involuntary termination of the WHX Pension Plan ("WHX Pension Plan"). The PBGC
stated in its Notice that it took this action because of its concern that
"PBGC's possible long-run loss with respect to the WHX Pension Plan may
reasonably be expected to increase unreasonably if the WHX Pension Plan is not
terminated." WHX filed an answer to this complaint on March 27, 2003, contesting
the PBGC's action. The PBGC has announced in a press release that it contends
that the WHX Pension Plan has roughly $300 million in assets to cover more than
$443 million in benefit liabilities resulting in a funding shortfall of
approximately $143 million (without accounting for plant shutdown benefits).
Furthermore, in a press release, the PBGC contends that plant shutdown
liabilities of the WHX Pension Plan, if they were to occur, could be as much as
$378 million. WHX disputes the PBGC's calculation of liabilities and shutdown
claims since the actual amount of these liabilities may be substantially less,
based on alternative actuarial assumptions. Furthermore, WHX disputes the PBGC's
assumption regarding the likelihood of large-scale shutdowns at WPC. However,
there can be no assurance that WHX's assertions will be accepted and that
shutdowns would not occur. If the PBGC's action is successful and the WHX
Pension Plan is terminated, the PBGC could file a claim against the Company in
an amount from $143 million to $521 million, which the Company would be unable
to fund. WHX intends to vigorously defend itself against such claims, but there
can be no assurance that it will prevail.
For additional information concerning these developments, see Item 2
- - Management's Discussion and Analysis of Financial Condition and Results of
Operations and Notes 1 and 9 to the Consolidated Financial Statements.
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 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
16
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, $1.7 million and $0.7 million for 2001, 2002, and the
three-months ended March 31, 2003, respectively. WPC anticipates spending
approximately $18.2 million in the aggregate on major environmental compliance
projects through the year 2005, estimated to be spent as follows: $3.7 million
in 2003, $11.6 million in 2004 and $2.9 million in 2005. 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. Should WPC
finalize a Plan of Reorganization and emerge from bankruptcy, certain
restructuring projects, including significantly higher environmental spendings
are likely to occur.
WPC's non-current accrued environmental liabilities totaled $17.9
million at March 31, 2003. 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 WHX for payment of such liabilities.
NOTE 11 - REPORTED SEGMENTS
- ---------------------------
The Company has three reportable segments: (1) 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) Wire & Tubing.
This segment manufactures and sells metal 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) Engineered Materials.
This segment manufactures specialty roofing and construction fasteners, products
for gas, electricity and water distribution using steel and plastic which are
sold to the construction, and natural gas and water distribution industries, and
electrogalvinized products used in the construction and appliance industries.
Management reviews operating income to evaluate segment performance.
Operating income for the reportable segments excludes unallocated general
corporate expenses. Other income and expense, interest 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.
The following table presents information about reported segments for
the three-month period ending March 31, 2003 and 2002:
17
(in thousands) Three Months Ended
March 31,
2003 2002
--------- ---------
Revenue
Precious Metal $ 22,354 $ 34,872
Wire & Tubing 32,148 34,613
Engineered Materials 26,498 23,338
-------- --------
Consolidated revenue $ 81,000 $ 92,823
======== ========
Segment operating income
Precious Metal $ (1,199) $ 1,587
Wire & Tubing (725) 1,843
Engineered Materials 613 1,888
-------- --------
(1,311) 5,318
-------- --------
Unallocated corporate expenses 6,624 4,705
-------- --------
Operating income (loss) (7,935) 613
Interest expense 5,017 8,803
Gain on early retirement of debt 1,033 29,016
Other income (expense) (1,508) 1,238
-------- --------
Income (loss) before taxes, discontinued operations
and cumulative effect of accounting change (13,427) 22,064
Income tax benefit (4,579) (787)
Income from discontinued operations - net of tax -- 1,851
-------- --------
Income (loss) before cumulative effect of accounting change (8,848) 24,702
Cumulative effect of accounting change - net of tax -- (44,000)
-------- --------
Net loss $ (8,848) $(19,298)
======== ========
NOTE 12 - SUPPLEMENTAL WPC GROUP INCOME STATEMENT DATA
- ------------------------------------------------------
During the three months ended March 31, 2003 and 2002, the WPC Group
incurred a net loss of $45.6 million and $41.0 million, respectively. These
results are not reflected in WHX's March 31, 2003 and 2002 consolidated results
of operations. (see Note 1) The WPC Group's summarized income statement data for
the three months ended March 31, 2003 and 2002 is as follows (in thousands):
Three months ended
March 31,
2003 2002
--------- ----------
Net sales $ 238,672 $ 206,081
Cost of goods sold, excluding depreciation 247,253 211,658
Depreciation 17,445 17,817
Selling, general and administrative expenses 13,864 11,840
Reorganzation expenses 3,300 2,957
--------- ---------
Operating profit/(loss) (43,190) (38,191)
Interest expense 3,651 3,805
Reorganization income (expense) (9) --
Other income (expense) 1,234 977
--------- ---------
Pre-tax profit/(loss) (45,616) (41,019)
Tax provision 9 6
--------- ---------
Net income/(loss) $ (45,625) $ (41,025)
========= =========
18
PART I
ITEM 2. 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 ("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 2.
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.
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 term loan portion of the DIP Credit Agreement
provided to the WPC Group. In addition, at March 31, 2003, WHX had
balances due from WPSC totaling $7.0 million in the form of secured
advances and liquidity support. As part of the amended Chapter 11 Plan
of Reorganization for the WPC Group, WHX has agreed conditionally to
forgo repayment of these claims from the reorganized company. If the
conditions are not met, WHX Group's recovery of these amounts is not
certain.
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.
o The WPC Group has a large net operating tax 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 ("WHX Pension Plan"). While that
pension plan fully complies with ERISA minimum funding requirements at
December 31, 2002, there can be no assurance as to the Plan's ongoing
funding status. 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; (c) events triggering early retirement
obligations such as plant shutdowns and/or certain types of hourly
workforce reductions resulting from the Bankruptcy Filing or otherwise
and (d) the action taken by the Pension Benefit Guaranty Corporation
("PBGC") to terminate the WHX Pension Plan (see below). WHX has also
agreed to be contingently liable for a portion of the OPEB Obligations
(as defined below), subject to certain conditions. Funding obligations,
19
if they arise, may have an adverse impact on the WHX Group's liquidity.
The 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 On March 6, 2003, the PBGC issued its Notice of Determination
("Notice") and on March 7, 2003 filed a Summons and Complaint
("Complaint") in United States District Court for the Southern District
of New York seeking the involuntary termination of the WHX Pension Plan
("WHX Pension Plan"). In the event WHX is not able to reach an
acceptable agreement with the PBGC regarding the WHX Pension Plan, and
if the PBGC's action is successful, there will be material adverse
effects upon the Company, including without limitation, the failure to
satisfy a condition to the $250 million Federal loan guaranty, the
uncertainty of confirming the Plan of Reorganization filed by the WPC
Group, and the imposition of significant additional liabilities upon
WHX which WHX would be unable to pay;
o As a result of the recent action of the PBGC to terminate the
WHX Pension Plan, H&H informed its lenders on March 11, 2003, that the
PBGC action may have been an occurrence that would preclude H&H from
making certain representations to the lenders (as required by the H&H
Facilities) in connection with future borrowings. H&H has elected not
to borrow any additional funds against the H&H Facilities until such
time as the PBGC action is resolved. If the PBGC action is upheld and
the WHX Pension Plan is terminated, such termination would constitute
an event of default under the H&H Facilities. If H&H is unable to cure
the default or obtain an amendment to the H&H Facilities, it could lead
to a cancellation of the H&H Facilities and an acceleration of the
outstanding borrowings. If the lenders were to accelerate the
obligations under the H&H Facilities it would have a material adverse
effect upon the liquidity, financial position and capital resources of
H&H. In addition the acceleration of the H&H obligations would be an
event of default under WHX's 10 1/2% Senior Notes. Upon the occurrence
of an event of default, the trustee or the holders of 25% in principal
amount of the then outstanding notes could accelerate the 10 1/2%
Senior Notes. Any such acceleration would have a material adverse
effect upon the liquidity, financial position and capital resources of
WHX.
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; and
o WHX and H&H 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
o The credit agreement of H&H has certain financial covenants
that limit the amount of cash distributions that can be paid to WHX.
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. On November 15, 2002, the
Bankruptcy Court approved a motion to amend the DIP Credit Agreement to reduce
the revolving loans, swing loans and letter of credit to a maximum aggregate of
$160 million and to make certain other related changes to the agreement. In
20
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 $147.3 million and $135.5 million at March 31, 2003 and
December 31, 2002 respectively. Term Loans under the DIP Credit Facility totaled
$35.4 million and $35.2 million at March 31, 2003 and December 31, 2002
respectively. Letters of credit outstanding under the facility totaled $2.8
million at March 31, 2003. At March 31, 2003, net availability under the DIP
Credit Facility was $6.8 million. The DIP Credit Facility currently expires on
the earlier of May 17, 2003 or the completion of a Plan of Reorganization.
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
owns a $32.0 million participation interest in the Term Loan discussed above and
holds other claims against WPC and WPSC totaling approximately $7.0 million. The
recognition of the WPC Group's net loss of $176.6 million, in the year 2000,
eliminated the investment's carrying value of $136.8 million. In November 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.
During the period November 17, 2000 through March 31, 2003, the WPC
Group incurred cumulative net losses of $317.0 million. Pursuant to the terms to
the amended POR, WHX has conditionally agreed to contribute $20.0 million to the
WPC Group (see discussion below pertaining to WHX Contributions). As a result of
the Company's probable obligation to fund $20.0 million to WPC Group, the
Company has recorded a $20.0 million charge as Equity in loss of WPC in the
accompanying Statement of Operations.
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.
The Settlement Agreement provided, in part, for (1) the payment by
WHX to WPC of $32 million; (2) the exchange of releases between the WPC Group
and the WHX Group; (3) the acquisition by WHX or its designee of certain assets
of Pittsburgh-Canfield Corporation ("PCC"), plus the assumption of certain trade
payables, subject to certain terms and conditions (WHX recorded $5.4 million as
the fair value of the net assets of PCC.); (4) the termination of the Tax
Sharing Agreements between WHX and WPC; (5) WHX to 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; and (6) the final settlement of all inter-company receivables and
liabilities between the WHX Group and the WPC Group (except for commercial trade
transactions), including the liability for redeemable stock. Such transactions,
other than the acquisition of certain assets of PCC, all occurred effective May
29, 2001. The acquisition of certain assets of PCC closed on June 29, 2001. The
PCC agreement included a one-year repurchase option for the seller. The
repurchase option expired unexercised on June 29, 2002.
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 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 $5.0 million
of liquidity support referred to above, during the period from February 1, 2002
through March 31, 2002, (the conditions were not met and 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, among
other things, a confirmed WPSC Plan of Reorganization (item 3 has since been
21
superceded by the WHX Contributions described below). Through March 31, 2003,
WHX had advanced $5.0 million of the loans and up to $5.5 million of financing.
At March 31, 2003, the outstanding balance of these secured advances was $5.0
million plus interest of $0.4 million, and $1.6 million, respectively.
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 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 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 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 $5.0 million loan from the State of West Virginia, a $7.0 million
loan and a $0.2 million grant from the State of Ohio, a $10.0 million advance by
the WHX Group for future steel purchases (all of which were delivered before
June 30, 2002) and additional wage and salary deferrals from WPSC union and
salaried employees. At December 31, 2002, the balance outstanding with the State
of West Virginia was $5.0 million, and $7.0 million with the State of Ohio.
On September 23, 2002, WPC announced that the Royal Bank of Canada
("RBC") had filed on its behalf an application with the Emergency Steel Loan
Guarantee Board ("ESLGB") for a $250 million federal loan guarantee. An
affiliate of RBC has agreed to underwrite the loan if the guaranty is granted.
On February 28, 2003, the ESLGB initially rejected the application. WPC and RBC,
however, amended and supplemented the application and it was conditionally
approved on March 26, 2003. The approval of the guaranty is subject to the
satisfaction of various conditions on or before June 30, 2003 including, without
limitation, resolution of the treatment of the WHX Pension Plan that is
acceptable to and approved by the PBGC, confirmation of a Plan of Reorganization
for the WPC Group, and the execution of definitive agreements satisfactory in
form and substance to the ESLGB.
The amended RBC application contained a business plan that assumed a
confirmed Chapter 11 plan of reorganization ("POR") for the WPC Group. As part
of the POR, the Company has agreed conditionally to make certain contributions
(the "WHX Contributions") to the reorganized company. Under the WHX
Contributions, the Company would forgo repayment of its claims against the
debtors of approximately $39 million and, additionally, would contribute to the
reorganized company $20 million of cash, for which the Company would receive a
note in the amount of $10 million. The WHX Contributions would be subject to a
number of conditions including, without limitation, that (1) the POR be
satisfactory to the Company in its sole and absolute discretion, and (2) the
Company's dispute with the PBGC, described below, be resolved to the
satisfaction of the Company in its sole and absolute discretion. As a result of
the Company's probable obligation to fund $20.0 million to WPC, the Company has
recorded a $20.0 million charge as Equity in loss of WPC in the accompanying
Consolidated Statement of Operations.
On March 6, 2003, the Pension Benefit Guaranty Corporation ("PBGC")
published its Notice of Determination ("Notice") and on March 7, 2003 filed a
Summons and Complaint ("Complaint") in United States District Court for the
Southern District of New York seeking the involuntary termination of the WHX
Pension Plan ("WHX Plan"). The PBGC stated in its Notice that it took this
action because of its concern that "PBGC's possible long-run loss with respect
to the WHX Pension Plan may reasonably be expected to increase unreasonably if
the WHX Pension Plan is not terminated." WHX filed an answer to this complaint
on March 27, 2003, contesting the PBGC's action. The PBGC's action to terminate
the WHX Pension Plan was taken following the initial rejection on February 28,
2003 by the ESLGB of RBC's application for a $250 million federal loan guaranty.
The PBGC has been notified of the loan guaranty approval on March 26, 2003. As
described above, obtaining an acceptable resolution of the treatment of the WHX
Pension Plan is a condition to the loan guaranty. If an acceptable resolution is
not obtained on or before June 30, 2003, then a condition to the loan guaranty
shall not have been satisfied. If the loan guaranty is not granted it is
22
unlikely that the present Plan of Reorganization, filed with the Bankruptcy
Court on December 20, 2002, will be confirmed. Furthermore, it is doubtful that
an alternative plan could be confirmed in a reasonable time frame (although WPC
management has indicated that it would attempt to pursue such an alternate
plan). In either case there can be no assurance as to the future of the WPC
Group. In a press release the PBGC contends that the WHX Pension Plan has
roughly $300 million in assets to cover more than $443 million in benefit
liabilities resulting in a funding shortfall of approximately $143 million
(without accounting for plant shutdown benefits). Furthermore, the PBGC contends
that plant shutdown liabilities, if they were to occur, could be as much as $378
million. WHX disputes the PBGC's calculation of liabilities and shutdown claims
since the actual amount of these liabilities may be substantially less, based on
alternative actuarial assumptions. However, there can be no assurance that WHX's
assertions will be accepted. If the PBGC's action is successful and the WHX
Pension Plan is terminated, WHX expects that it will be subject to a claim by
the PBGC of at least $143 million. WHX intends to vigorously defend itself
against such claims, but there can be no assurance that WHX would prevail. If
the WHX Pension Plan were terminated, WHX believes it is unlikely that the
present Plan of Reorganization, filed with the Bankruptcy Court filed on
December 29, 2002, will be confirmed. Furthermore, it is doubtful that an
alternative plan could be confirmed in a reasonable time frame (although WPC
management has indicated that it would attempt to pursue such an alternate
plan). In either case there can be no assurance as to the future of the WPC
Group. If a cessation of operations of the WPC Group or termination of the Plan
were to occur, the consequential cash funding obligations to the WHX Pension
Plan would have a material adverse impact on the liquidity, financial position
and capital resources of the Company.
Management of the Company cannot at this time determine with
certainty the ultimate outcome of the Chapter 11 proceedings or the related PBGC
action; however it is possible that the following outcomes could result, whether
upon the confirmation of the Plan of Reorganization as submitted or as it may be
amended or modified, or otherwise:
a) The WPC Group could reorganize, and its creditors could receive a
portion of their claims in cash or in stock of WPC or WPSC. In such
a case, the WHX Group would have little or no future ownership in or
involvement with the WPC Group (except as a creditor) and the WHX
Group's future cash obligations to or on behalf of the WPC Group
would be minimal to none (other than the WHX Contributions, referred
to above).
b) The PBGC could prevail in its actions to terminate the WHX
Pension Plan, which could result in a partial or complete
liquidation of the WPC Group. If such liquidation were to occur, the
Company could be responsible for significant early retirement
pension benefits. In such a case, the PBGC would likely seek to
enforce claims for shutdown liabilities against the Company in
addition to the $143 million claims for accumulated benefit
liabilities referred to above. The PBGC asserts that shutdown claims
arising from a complete liquidation of the WPC Group would result in
claims against the Company of as much as $378 million. A shutdown of
only a portion of the WPC Group's facilities would generate shutdown
liabilities in a lower amount. WHX disputes the PBGC's assertion
with regard to each of their claims. If the PBGC were to prevail
against the Company, the PBGC could file a claim in an amount from
$143 million to $521 million, which the Company would be unable to
fund.
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 was 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. WPSC's total OPEB Obligation at January 1,
2003 is estimated to be $314.1 million. WHX has estimated that approximately 85%
of employees and retirees entitled to such OPEB Obligations are represented by
the USWA.
WHX's liability for OPEB Obligations 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. If the POR is
confirmed, WHX believes that its liability for the OPEB Obligations would be
eliminated.
23
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 business currently is Handy & Harman, a diversified manufacturing
company whose strategic business units encompass three segments: precious metal
plating and fabrication, specialty wire and tubing, and engineered materials.
WHX also owns Pittsburgh-Canfield Corporation, a manufacturer of
electrogalvanized products used in the construction and appliance industries. In
July 2002, the Company sold its wholly owned subsidiary, Unimast Incorporated, a
leading manufacturer of steel framing and other products for commercial and
residential construction. As a result, Unimast has been classified as a
discontinued operation for all periods presented. 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.
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THE FIRST QUARTER OF 2003 WITH THE FIRST QUARTER OF 2002
- ----------------------------------------------------------------------
Net sales for the first quarter of 2003 were $81.0 million compared
to $92.8 million in the first quarter of 2002. Sales decreased at the Precious
Metal Segment by $12.5 million and by $2.5 million at the Wire & Tubing Segment.
Sales increased by $3.2 million at the Engineered Materials Segment. Gross
profit percentage declined in the first quarter of 2003 to 17.3% from 19.0% in
the first quarter of 2002 primarily from a $1.3 million lower of cost or market
adjustment for precious metal inventory in the 2003 period.
Selling, general and administrative expenses increased $5.0 million
to $22.0 million in the first quarter of 2003 from $17.0 million in the
comparable 2002 period. This resulted from increased pension expense of $2.1
million and a $3.5 million charge for employee separation and related expenses
in the first quarter of 2003. The $3.5 million charge relates to a reduction in
executive, administrative and information technology personnel at H&H. These
reductions should result in cost savings in future periods.
Operating loss for the first quarter of 2003 was $7.9 million
compared to operating income of $0.6 million for the first quarter of 2002.
Operating loss at the segment level was $1.3 million compared to operating
income of $5.3 million in 2002. The 2003 operating loss at the segment level
includes the $3.5 million charge for employee separation and related expenses
discussed above. These charges have been allocated to the three business
segments.
Unallocated corporate expenses increased from $4.7 million to $6.6
million. This increase is related to increased pension expense of $2.1million.
The increased pension expense is primarily related to the lowering of the
assumed long-term rate of return on the WHX Pension Plan assets from 9.25% to
8.5% and a reduction in the discount rate. Full year pension expense under SFAS
87 accounting is estimated to be $16.1 million compared to $7.6 million in 2002.
Interest expense for the first quarter of 2003 decreased $3.8
million to $5.0 million from $8.8 million in the first quarter of 2002. This
decrease was due to lower borrowings, primarily from the retirement of $134.6
million aggregate principal amount of 10 1/2% Senior Notes in 2002, lower
interest rates and reduced amortization of deferred financing and consent fees.
Other expense was $1.5 million in the first quarter of 2003 compared
to income of $1.2 million in 2002. Included in 2003 is net investment income of
$1.0 million, an unrealized loss on short-term investments of $1.0 million, loss
on interest rate swap $0.4, and loss on disposal of assets of $0.8 million.
In the three months ended March 31, 2003, the Company purchased and
retired $5.7 million aggregate principal amount of 10 1/2% Senior Notes in the
open market for $4.5 million. After the write off of $0.2 million of deferred
24
debt related costs, the Company recognized a pre-tax gain of $1.0 million. In
the quarter ended March 31, 2002, the Company purchased and retired $82.5
million aggregate principal amount of the 10 1/2% Senior Notes in the open
market for $50.6 million. After the write off of deferred debt related costs,
the Company recognized a pre-tax gain of $29.0 million. Subsequent to March 31,
2003, the Company purchased and retired $3.2 million aggregate principal amount
of the 10 1/2% Senior Notes in the open market for $2.5 million.
The Company adopted the provisions of Statement of Financial
Standards 142, "Goodwill and Other Intangible Assets" ("SFAS 142") effective
January 1, 2002. As a result of the adoption of SFAS 142, the Company recorded a
$44.0 million non-cash goodwill impairment charge related to the H&H Wire Group
in the first quarter of 2002. This charge was reported as a cumulative effect of
an accounting change. The Company recorded this charge because the fair value of
this reporting unit, as determined by estimated cash flow projections, was less
than the reporting unit's carrying value.
The 2003 first quarter tax benefit is based on a Federal benefit of
35%, offset by permanent differences and state and foreign tax expense. The 2002
first quarter tax provision assumes no liability for federal taxes. This is
based on the assumed utilization of net operating loss carryforwards of WPC, a
non-consolidated subsidiary. The cumulative effect of an accounting change in
2002 had no tax consequences as it relates to non-deductible goodwill.
The comments that follow compare revenues and operating income from
continuing operations by segment for the first quarter 2003 and 2002:
PRECIOUS METAL
- --------------
Sales for the Precious Metal Segment decreased $12.5 million from
$34.9 million in 2002 to $22.4 million in 2003 primarily due to the shutdown of
the Fairfield facility in the third quarter of 2002. Operating income decreased
$2.8 million from $1.6 million in 2002 to a loss of $1.2 million in 2003.
Included in 2003 is a non-cash lower of cost or market charge of $1.3 million
related to precious metals inventory and an additional $1.1 million of severance
and related expenses allocated to this group from the reduction in salaried
staff at Handy & Harman. The remaining operating income decrease of $0.4 million
is primarily due to the shutdown of the Fairfield, CT facility.
WIRE & TUBING
- -----------------
Sales for the Wire & Tubing Segment decreased $2.5 million from
$34.6 million in 2002 to $32.1 million in 2003 due to the continued weakness in
the semiconductor fabrication and telecommunications markets and the shutdown of
the Liversedge, England and Willingboro, N.J. facilities at the end of 2002.
Operating income decreased by $2.6 million from $1.8 million in 2002
to an operating loss of $0.7 million in 2003. Included in 2003 is an additional
$1.5 million of severance and related expenses allocated to this group from the
reduction in salaried staff at Handy & Harman. The remaining operating income
decrease of $1.1 million is due to the continued weakness in the semiconductor
fabrication and telecommunication markets as well as increased raw material
costs and declining sales prices associated with this segment's refrigeration
business.
ENGINEERED MATERIALS
- --------------------
Sales for the Engineered Materials Segment increased $3.2 million
from $23.3 million in 2002 to $26.5 million in 2003 due to market share gains
and new products in this segment's fastener business.
Operating income decreased by $1.3 million from $1.9 million in 2002
to $0.6 million in 2003. Included in 2003 is an additional $0.9 million of
severance and related expenses allocated to this group from the reduction in
salaried staff at Handy & Harman. The remaining operating income decrease of
$0.4 million is primarily due to increased raw material cost.
25
FINANCIAL POSITION
- ------------------
Net cash flow provided by operating activities from continuing
operations for the three months ended March 31, 2003 totaled $84.1 million.
Income from continuing operations adjusted for non-cash income and expense items
used $6.4 million of cash. Working capital accounts provided $89.5 million of
funds, as follows: Short-term trading investments and related short-term
borrowings are reported as cash flow from operating activities and provided a
net $93.8 million of funds in the first three months of 2003. Accounts
receivable used $6.1 million, trade payables used $5.3 million, and net other
current items provided $7.3 million. Inventories, valued principally by the LIFO
method for financial reporting purposes, totaled $69.2 million at March 31,
2003, and used $.2 million.
Other non-working capital items included in operating activities
provided $1.0 million.
In the first three months of 2003, $3.4 million was spent on capital
improvements.
In the first quarter of 2003 the Company purchased an aircraft for
$19.1 million which it intends to re-sell . The aircraft is included in other
current assets on the Company's Consolidated Balance Sheet at March 31, 2003.
The Company's major subsidiary, H&H, maintains a separate and
distinct credit facility with various financial institutions.
Borrowings outstanding against the H&H Senior Secured Credit
Facility at March 31, 2003 totaled $155.2 million. Letters of credit outstanding
under the H&H Revolving Credit Facility were $13.6 million at March 31, 2003. At
December 31, 2002, borrowings outstanding under the H&H Senior Secured Credit
Facility were $130.5 million.
H&H has entered into an interest rate swap agreement for certain of
its variable-rate debt. The swap agreement covers a notional amount of $100.0
million and converts $100.0 million of its variable rate debt to a fixed rate of
4.79%. The effective date of the swap is January 1, 2003 with a termination date
of July 1, 2004.
In the three months ended March 31, 2003 the Company purchased and
retired $5.7 million aggregate principal amount of 10 1/2% Senior Notes in the
open market for $4.5 million. After the write off of $.2 million of deferred
debt related costs, the Company recognized a gain of $1.0 million.
As a result of the recent PBGC action to terminate the WHX Pension
Plan, H&H has elected not to borrow any additional funds against the H&H Credit
Facilities until such time as the PBGC action is resolved. This election has
resulted in an increase in H&H borrowings under its Senior Secured Credit
Facility of $24.7 million, as H&H has not used cash to reduce its revolver
balance.
LIQUIDITY
- ---------
As more fully discussed above, the PBGC has announced its intention
to seek to terminate the WHX Pension Plan. If the PBGC were to prevail against
the Company, the PBGC could file a claim in an amount from $143 million to $521
million, which the Company would be unable to fund. An unfavorable resolution of
the PBGC action would have a material adverse effect on the liquidity, capital
resources and results of operations and financial position of the Company. The
following discussion on Liquidity of the Company has been prepared and is
presented without giving effect to any resulting effects of the PBGC action.
At March 31, 2003 the WHX Group had cash and cash equivalents of
$99.9 million and short-term investments of $3.7 million.
In the twelve months ended December 31, 2002, the Company purchased
and retired $134.6 million aggregate principal amount of 10 1/2% Senior Notes in
the open market for $87.6 million. During the period January 1, 2003 through
March 31, 2003, purchased $5.7 million aggregate principal amount of Senior
Notes in the open market for $4.5 million. Subsequent to March 31, 2003, WHX
purchased and retired an additional $3.2 million aggregate principal amount of
10 1/2% Senior Notes in the open market for $2.5 million. The cumulative result
of these purchases amounted to a reduction of principal of $143.5 million and
annual reduction in future cash interest expense of $15.1 million.
26
On July 31, 2002, the Company sold the stock of Unimast, Inc., its
wholly-owned subsidiary, to Worthington Industries, Inc. for $95.0 million in
cash. Under the terms of the agreement, the buyer assumed approximately $25.6
million of Unimast debt. Net cash proceeds from the sale, after escrow of $2.5
million, closing costs, transaction fees, employee related payments, and other
costs and expenses were approximately $85.0 million. The Company applied these
proceeds in accordance with the terms of the Indenture for the Company's 10 1/2
% Senior Notes.
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 March 31, 2003, WHX had balances due from WPSC totaling
$7.0 million in the form of advances and liquidity support. As part of the POR
the Company has agreed conditionally to make certain contributions to the
reorganized company. Under the WHX contribution the Company will forgo repayment
of the above claims and a will contribute $20 million in cash to the reorganized
company.
The WHX Group has a significant amount of outstanding indebtedness,
and their 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 foreseeable future. The
credit agreement of H&H has 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 third quarter of
2002, H&H received a capital contribution of $5.0 million from WHX in order to
remain in compliance with certain of these financial covenants. Such funds were
utilized to reduce H&H debt. The H&H credit agreement allows for the payment of
management fees, income taxes pursuant to a tax sharing agreement, precious
metal lease repayments and related interest, and certain other expenses. In
addition, dividends may be paid under certain conditions. At December 31, 2002,
the net assets of H&H amounted to $206.1 million, of which approximately $1.0
million was not restricted as to the payment of dividends to WHX.
On March 6, 2003, the PBGC issued its Notice and on March 7, 2003,
the PBGC published its Notice and filed a Complaint in the United States
District Court for the Southern District of New York seeking to terminate the
WHX Corporation Pension Plan ("WHX Plan"). On March 11, 2003 H&H informed its
lenders that the PBGC action may have been an occurrence that would preclude H&H
from making certain representations to the lenders (as required by the H&H
Facilities) in connection with future borrowings. H&H has elected not to borrow
any additional funds against the H&H Facilities until such time as the PBGC
action is resolved. If the PBGC action is upheld and the WHX Pension Plan is
terminated, such termination would constitute an event of default under the H&H
Facilities. If H&H is unable to cure the default or obtain an amendment to the
H&H Facilities, it could lead to a cancellation of the H&H Facilities and an
acceleration of the outstanding borrowings. If the lenders were to accelerate
the obligations under the H&H Facilities it would have a material adverse effect
upon the liquidity, financial position and capital resources of H&H.
In addition, an acceleration of the obligations under the H&H
Facilities would be an event of default under WHX's 10 1/2 % Senior Notes. Upon
the occurrence of an event of default, the trustee or the holders of 25% in
principal amount of the then outstanding notes could accelerate the 10 1/2%
Senior Notes. Any such acceleration would have a material adverse effect upon
the liquidity, financial position and capital resources of WHX.
Short-term liquidity is dependent, in large part, on cash on hand,
investments, precious metal values, and general economic conditions and their
effect on market 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 Facility and funds generated
from operations. The WHX Group believes that, cash on hand, assuming it is able
to sustain the current outstanding borrowings under the H&H Facilities, will
provide the WHX Group for the next twelve months with the funds required to
satisfy working capital and capital expenditure requirements. However, factors,
such as the PBGC's announced intention to terminate the WHX Pension Plan and
economic conditions, could materially affect the WHX Group's results of
operations, financial condition and liquidity.
At March 31, 2003 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 was
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
27
satisfies certain conditions set forth in the Indenture. Such conditions were
not satisfied at March 31, 2003. 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, the holders of the Preferred Stock have the right to elect
two directors to the Company's Board of Directors. To date, the holders of the
Preferred Stock have not elected such directors. At March 31, 2003, preferred
dividends in arrears totaled $48.6 million.
NEW ACCOUNTING STANDARDS
- ------------------------
The Company adopted the provisions of Statement of Financial
Standards 142, "Goodwill and Other Intangible Assets" ("SFAS 142") effective
January 1, 2002. As a result of the adoption of SFAS 142, the Company recorded a
$44.0 million non-cash goodwill impairment charge related to the H&H Wire Group
in the first quarter of 2002. This charge was reported as a cumulative effect of
an accounting change. The Company recorded this charge because the fair value of
this reporting unit, as determined by estimated cash flow projections, was less
than the reporting unit's carrying value.
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement No. 143, "Accounting for Asset Retirement Obligation" ("SFAS
143"). SFAS 143 requires that obligations associated with the retirement of a
tangible long-lived asset 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. WHX adopted the provisions of SFAS 143 on
January 1, 2003 and its adoption did not have a significant effect on the
Company's financial statements.
In October 2001, the FASB issued Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". 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 adopted the provisions of SFAS 144 as of
January 1, 2002.
On July 31, 2002, WHX sold the stock of Unimast, its wholly-owned
subsidiary for $95.0 million. As a result of this transaction, Unimast was
accounted for as a discontinued operation in accordance with SFAS 144. (see Note
2).
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 sets forth
various modifications to existing accounting guidance which prescribes the
conditions which must be met in order for costs associated with contract
terminations, facility consolidations, employee relocations and terminations to
be accrued and recorded as liabilities in financial statements. WHX adopted the
provisions of SFAS 146, as related to exit or disposal activities as of January
1, 2003, and its adoption did not have a significant effect on the Company's
financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition to SFAS No. 123's fair value method of accounting for
stock-based employee compensation. While the Statement does not amend SFAS No.
123 to require companies to account for employee stock options using the fair
value method, the disclosure provisions of SFAS No. 148 are applicable to all
companies with stock-based employee compensation, regardless of whether they
account for that compensation using the fair value method of SFAS No. 123 or the
intrinsic value method of APB No. 25, "Accounting for Stock Issued to
Employees." The Company has adopted the disclosure provisions of SFAS 148.
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities," which addresses consolidation by
a business of variable interest entities in which it is the primary beneficiary.
The Interpretation is effective immediately for certain disclosure requirements
28
and variable interest entities created after January 31, 2003, and in fiscal
2004 for all other variable interest entities. This Interpretation will not have
a material impact on the Company's financial statements. .
*******
When used in the Management's Discussion and Analysis, the words
"anticipate", "estimate" and similar expressions are intended to identify
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, which are intended to be covered by the
safe harbors created thereby. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including without limitation, general
economic conditions and, the ability of the Company to develop markets and sell
its products and the effects of competition and pricing. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included herein will prove
to be accurate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no changes in financial market risk as originally
discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation, as of a date within 90 days of the filing
of this Form 10-Q, the Company's Principal Executive Officer and Principal
Financial Officer have concluded the Company's disclosure controls and
procedures (as defined in Rules 13a-14 and 15d-14 under the Securities Exchange
Act of 1934) are effective. There have been no significant changes in internal
controls or in the factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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"). 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 SEC, however, has authority to review any issues on its
own accord. WHX has filed its opposition brief. The SEC heard oral arguments on
the case on April 24, 2003
On November 16, 2000, the WPC Group filed petitions for relief under
Chapter 11 of the Bankruptcy Code. The Bankruptcy Filing was made 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
29
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. Reference is made to Note 1
of the Condensed Consolidated Financial Statements included herewith and to the
Company's Annual Report Form 10-K for a more detailed description of the matters
referred to in this paragraph.
Reference is hereby made to Item 3. Legal Proceedings of the
Company's Annual Report on Form 10-K for the year ended December 31, 2002, as
well as to Note 10 to the Condensed Consolidated Financial Statements included
herein, for information regarding additional matters.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At March 31, 2003, 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 equal amount 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 was
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
satisfies certain conditions set forth in the Indenture. Such conditions were
not satisfied as of March 31, 2003. Presently, management believes that it is
not likely that the Company will be able to pay these dividends in the
foreseeable future. At March 31, 2003 dividends in arrear amounted to $48.6
million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
* Exhibit 99.1 Certification of Principal Executive Officer
* Exhibit 99.2 Certificate of Principal Financial Officer
Form 8-K filed on February 14, 2003
Form 8-K filed on March 3, 2003
Form 8-K filed on March 7, 2003
Form 8-K filed on March 27, 2003
* Filed herewith
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHX CORPORATION
/s/ Robert K. Hynes
-------------------
Robert K. Hynes
Chief Financial Officer
(Principal Accounting Officer)
May 14, 2003
31
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.ss.1350)
I, Neil D. Arnold, certify that:
1. I have reviewed this quarterly report of Form 10-Q of WHX Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Neil D. Arnold
------------------
Neil D. Arnold
Vice Chairman
May 14, 2003
32
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.ss.1350)
I, Robert K. Hynes, certify that:
1. I have reviewed this quarterly report of Form 10-Q of WHX Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Robert K. Hynes
-------------------
Robert K. Hynes
Chief Financial Officer
May 14, 2003
33