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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003.
OR
/ / TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-2394
WHX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3768097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 EAST 59TH STREET 10022
NEW YORK, NEW YORK (Zip code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-355-5200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock, $.01 par value New York Stock Exchange
Series A Convertible Preferred Stock, $.10 par value New York Stock Exchange
Series B Convertible Preferred Stock, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
Indicate by check mark whether the Registrant (1) is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). Yes No |X|
---- ----
The aggregate market value of the voting stock held by non-affiliates of
registrant as of June 30, 2003 totaled approximately $10.9 million based on the
then-closing stock price as reported by the New York Stock Exchange. On March
31, 2004, there were approximately 5,485,856 shares of common stock, par-value
$.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive proxy statement to be filed pursuant to Regulation 14A in
connection with the 2004 Annual Meeting of Stockholders Part III.
ITEM 1. BUSINESS
OVERVIEW
WHX CORPORATION
WHX Corporation ("WHX") is a holding company that has been structured to
invest in and manage a diverse group of businesses. 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. In July 2002, WHX 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 all periods presented. The
transaction closed on July 31, 2002. WHX's other business (through August 1,
2003 - see below) consisted 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 3 to the Consolidated Financial Statements). 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."
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 enabled the WPC Group to continue business operations as
debtors-in-possession. The Plan of Reorganization ("POR") was confirmed by the
Bankruptcy Court on June 18, 2003 and was consummated on August 1, 2003.
Pursuant to the terms of the POR, among other things, the WPC Group ceased to be
a subsidiary of WHX effective August 1, 2003, and from that date forward has
been an independent company.
As a result of the Bankruptcy Filing the Company had, as of November 16,
2000, deconsolidated the balance sheet of WPC. Accordingly, the accompanying
Consolidated Balance Sheet at December 31, 2002 does not include any of the
assets or liabilities of WPC. The accompanying Consolidated Statement of
Operations and the Consolidated Statement of Cash Flows exclude the operating
results of WPC for the periods after November 16, 2000. As more fully discussed
in Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 3 to the Consolidated Financial Statements, in
connection with the POR, the Company agreed to provide additional funds to WPC
amounting to $20.0 million. As a result, the Company recorded in the year ended
December 31, 2002 an equity loss in WPC up to the amount of such funding
commitment.
For additional information concerning these developments, see Item 3 -
Legal Proceedings, and Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations and Notes 3, 13 and 14 to the
Consolidated Financial Statements.
THE WHX GROUP
WHX acquired H&H in April 1998. H&H's business segments are the (a)
manufacturing and selling of wire, cable and tubing products, fabricated from
stainless steel, carbon steel and specialty alloys; (b) manufacturing and
selling of precious metal brazing products and precision electroplated materials
and stamped parts; and (c) manufacturing and selling of other engineered
materials supplied to the roofing, construction, natural gas, electric, and
water industries. H&H's products are sold to industrial users in a wide range of
applications which include the electric, electronic, automotive original
equipment, computer equipment, oil, refrigeration, utility, telecommunications,
medical and energy related industries.
On June 29, 2001 as part of the settlement agreement with the WPC Group
(as further discussed in Note 3 to the consolidated financial statements), WHX
acquired certain assets of Canfield Metal Coating Corporation ("CMCC") from the
WPC Group. CMCC manufactures and sells electrogalvanized products for
application in the appliance and construction markets. Effective December 31,
2003 CMCC became a wholly owned subsidiary of H&H.
SIGNIFICANT DEVELOPMENTS
The POR of the WPC Group was confirmed by the Bankruptcy Court on June
18, 2003 and was consummated on August 1, 2003. Pursuant to the terms of the
POR, among other things, the WPC Group ceased to be a subsidiary of WHX
effective August 1, 2003, and from that date forward has been an independent
company.
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The WHX 10 1/2% Senior Notes in the amount of $92.8 million are due on
April 15, 2005. It is the Company's intention to refinance this obligation prior
to its scheduled maturity; however there can be no assurance that such
refinancing will be obtained. The Company's access to capital markets in the
future to refinance such indebtedness may be limited. If the Company were unable
to refinance this obligation, it would have a material adverse impact on the
liquidity, financial position and capital resources of WHX and would impact the
Company's ability to continue as a going concern. The financial statements do
not reflect any adjustments related to this matter.
H&H's revolving credit facility existing at December 31, 2003 was
scheduled to mature on July 31, 2004. On March 31, 2004, H&H obtained new
financing agreements to replace and repay its existing Senior Secured Credit
Facilities, including the revolving credit facility. The new financing
agreements include a $70.0 million revolving credit facility and a $22.2 million
Term A Loan with Congress Financial Corporation ("Congress Facilities") and a
$71.0 million Term B Loan with Ableco Finance LLP ("Ableco"). Concurrently with
the new financing agreements, WHX loaned $43.5 million to H&H to repay, in part,
the Senior Secured Credit Facilities. Such loan is subordinated to the loans
from Congress and Ableco. In addition, WHX deposited $5.0 million of cash with
Ableco as collateral security for the H&H obligation. Portions of the cash
collateral may be returned to WHX prior to maturity of the Term B Loan if H&H
meets and maintains certain defined leverage ratios.
BUSINESS STRATEGY
WHX's business strategy has been to enhance the growth and profitability
of Handy & Harman and to build upon the strengths of its businesses through
product line and other strategic acquisitions.
H&H will continue to focus on high margin products and innovative
technology, while seeking growth through strategic acquisitions. H&H's business
strategy is to limit exposure to low margin, capital-intensive businesses and
focus on high margin strategic businesses. As part of that strategy, in 2002 H&H
exited certain of its precious metal activities which had been part of its
historical business base. In the mid 1990s, H&H exited its commodity automotive
OEM and precious metal refining businesses, and with its strong brand name and
customer recognition, expanded in specialty metals and materials product
markets. H&H focuses on its materials engineering expertise to expand production
of higher value-added products.
PRODUCTS AND PRODUCT MIX
H&H manufactures a wide variety of non-precious metal wire and tubing
products. Small-diameter precision-drawn tubing fabricated from stainless steel,
nickel alloy and carbon and alloy steel is produced in many sizes and shapes to
critical specifications for use in the semiconductor, aircraft, petrochemical,
automotive, appliance, refrigeration and instrumentation industries.
Additionally, tubular product is manufactured for the medical industry for use
as implants, surgical devices and instrumentation. Nickel alloy, galvanized
carbon steel and stainless steel wire products redrawn from rods are produced
for such diverse applications as bearings, cable lashing, hose reinforcement,
nails, knitted mesh, wire rope, cloth, air bags and antennas in the aerospace,
automotive, chemical, communications, marine, medical, petrochemical, welding
and other industries.
H&H's precious metals activities include the fabrication of precious
metals and their alloys into brazing alloys and the utilization of precious
metals in precision electroplating. H&H's profits from precious metal products
are derived from the "value added" of processing and fabricating and not from
the purchase and resale of precious metals. In accordance with general practice
in the industry, prices to customers are a composite of two factors: (1) the
value of the precious metal content of the product and (2) the "fabrication
value", which includes the cost of base metals, labor, overhead, financing and
profit. Fabricated precious metal brazing alloys are used in many industries
including automotive, air conditioning, general industrial and other
metal-joining industries.
H&H produces precision-stamped, electroplated and molded materials and
stamped parts (often using gold, silver, palladium and various base metals on
such materials and stamped parts) for use in the semiconductor,
telecommunications, automotive, electronics and computer industries. It also
participates in the injection-molded medical plastics market.
H&H, through other subsidiaries, manufactures fasteners, fastening
systems, plastic and steel fittings and connectors, non-ferrous thermite welding
powders, and electro galvanized products for the roofing, construction,
appliance, do-it-yourself, natural gas, electric and water distribution
industries.
3
CUSTOMERS
H&H is diversified across both industrial markets and customers. H&H
sells to the electronics, telecommunications, semiconductor, computer,
aerospace, home appliance OEM, automotive, construction, utility, medical and
general manufacturing industries. In 2003, no customer accounted for more than
5% of H&H's sales.
RAW MATERIALS
The raw materials used by H&H in its precious metal operations consist
principally of silver, gold, copper, zinc, nickel, tin, and the platinum group
metals in various forms. H&H purchases its precious metals at free market prices
from primary producers or bullion dealers. The prices of silver, gold, and
palladium are subject to fluctuations and are expected to continue to be
affected by world market conditions. Nonetheless, H&H has not experienced any
problem in obtaining the necessary quantities of raw materials and, in the
normal course of business, receives precious metals from suppliers. To the
extent that supplier or customer metals are used by H&H, the amount of inventory
which H&H must own is reduced. All precious metal raw materials are readily
available from several sources. It is H&H's operating policy to maintain its
precious metal inventory levels under the last in, first out ("LIFO") method of
accounting. Precious metals are purchased at the same prices and quantities as
selling commitments to customers. From time-to-time, management reviews the
appropriate inventory levels and may elect to make adjustments.
The raw materials used by H&H in its non-precious metal operations
consist principally of stainless, galvanized, and carbon steel, nickel alloys, a
variety of high-performance alloys, and various plastic compositions. H&H
purchases all such raw materials at open market prices from domestic and foreign
suppliers. H&H has not experienced any problem in obtaining the necessary
quantities of raw materials. Prices and availability, particularly of raw
materials purchased from foreign suppliers, are affected by world market
conditions and government policies.
BACKLOG
The WHX Group has no material backlog.
CAPITAL INVESTMENTS
The Company believes that its operating business segments must
continuously strive to improve productivity and product quality, and control
manufacturing costs, in order to remain competitive. Accordingly, the Company's
business segments are committed to making necessary capital investments with the
objective of reducing overall manufacturing costs, improving the quality of
products produced and broadening the array of products offered to the Company's
several markets. The WHX Group's capital expenditures for 2003 for continuing
operations were approximately $13.1 million. From 1999 to 2003, capital
expenditures for continuing operations aggregated approximately $71.2 million.
This level of capital expenditure was needed to expand and maintain productive
capacity, improve productivity and upgrade selected facilities to meet
competitive requirements and maintain compliance with environmental laws and
regulations. The Company anticipates funding its capital expenditures for the
WHX Group in 2004 from cash on hand, funds generated by operations and funds
available under the revolving credit facility at H&H. The Company anticipates
that capital expenditures for the WHX Group will approximate depreciation, on
average, over the next few years.
ENERGY REQUIREMENTS
The WHX Group requires significant amounts of electricity and natural
gas to operate its facilities and is subject to price changes in these
commodities. A shortage of electricity or natural gas, or a government
allocation of supplies resulting in a general reduction in supplies, could
increase costs of production and could cause some curtailment of production.
EMPLOYMENT
Total active employment of the WHX Group at December 31, 2003 aggregated
1,642 employees. Of these employees of the WHX Group, 481 were salaried
employees, 502 were covered by collective bargaining agreements and 659 were
non-union operating employees.
COMPETITION
H&H is one of the leading fabricators of precious metal brazing products
and precision stamping, electroplating and molding. Although there are no
companies in the precious metals field whose operations exactly parallel those
of H&H in every area, there are a number of competitors in each of the classes
of precious metals products. Many of these competitors also conduct activities
in other product lines in which H&H is not involved. Competition is based on
quality, technology, service and price, each of which is of equal importance.
4
There are many companies, domestic and foreign, that manufacture
non-precious wire and tubing products, and other specialty engineered products
of the type manufactured by the WHX Group. Competition is based on quality,
technology, service, price and new product introduction, each of which is of
equal importance.
ITEM 2. PROPERTIES
H&H has 21 active operating plants in the United States, Canada, Denmark
and Singapore (50% owned) with a total area of approximately 1,500,000 square
feet, including warehouse, office and laboratory space, but not including the
plant used by the Singapore operation. H&H also owns or leases sales, service
and warehouse facilities at five other locations in the United States (which,
with H&H's general offices, have a total area of approximately 68,000 square
feet) and owns ten non-operating or discontinued locations with a total area of
approximately 333,000 square feet. H&H considers its manufacturing plants and
services facilities to be well maintained and efficiently equipped, and
therefore suitable for the work being done. The productive capacity and extent
of utilization of its facilities is dependent in some cases on general business
conditions and in other cases on the seasonality of the utilization of its
products. Capacity can be expanded readily to meet additional demands.
Manufacturing facilities of H&H are located in: Fort Smith, Arkansas; Toronto,
Canada; Camden, Delaware; Kolding, Denmark; Evansville and Indianapolis,
Indiana; Cockeysville, Maryland; Agawam and Westfield, Massachusetts; Middlesex,
New Jersey; Canastota and Oriskany, New York; Canfield, Ohio; Tulsa and Broken
Arrow, Oklahoma; Norristown, Pennsylvania; East Providence, Rhode Island;
Cudahy, Wisconsin; and Singapore (50% owned).
All plants are owned in fee except for the Canastota, Fort Smith,
Middlesex, and Westfield plants, which are leased.
ITEM 3. LEGAL PROCEEDINGS
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"), and that the Company violated Rules
14d-4(c) and 14d-6(d) under the Exchange Act upon expiration of the Offer. The
SEC does not claim that the Offer was intended to or in fact defrauded any
investor. 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 filed a petition and brief for the SEC to
review the decision, but only as to the All Holders Rule Claim. On June 4, 2003,
the SEC issued an Opinion of the Commission that found that the Company had
violated the "All Holders Rule" and ordered that the Company cease and desist
from further violations of Section 14(d)(4) of the Exchange Act or the "All
Holders Rule." The Company filed a petition for review of the SEC's decision
with the United States Court of Appeals for the District of Columbia. On April
9, 2004, the Court of Appeals vacated the SEC's cease and desist order, and the
portion of the SEC's Opinion that found the order justified, because both were
arbitrary and capricious. The Court's Opinion also expressly explained that the
Court did not need to reach (and did not reach) the Company's other claims,
which, among other things, challenged the merits of the SEC's finding that the
Company violated the "All Holders Rule." The Company does not know at this time
whether the SEC will seek further appellate review of the Court's Opinion.
OTHER 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.
ENVIRONMENTAL MATTERS
Prior to the consummation of the POR, WHX was the sole stockholder of
WPC, the parent company of the WPC Group. The WPC Group 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. The WPC Group entered
into a Settlement Agreement with the US EPA that resolves all of the US EPA's
pre-petition unsecured claims under the Superfund law and releases the WPC Group
from any future liability for such claims. The Bankruptcy Court approved the
Settlement Agreement by order entered June 13, 2003.
In the event the WPC Group is responsible for any environmental
liabilities relating to the period prior to the consummation of the POR and is
5
unable to fund these liabilities, claims may be made against WHX for payment of
such liabilities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Part II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The number of shares of Common Stock issued and outstanding as of March
31, 2004 was 5,485,856. There were approximately 11,004 holders of record of
Common Stock as of March 31, 2004. There were no purchases of Common Stock made
by the Company in 2003, 2002 and 2001.
The prices set forth in the following table represent the high and low
sales prices for the Company's Common Stock on the New York Stock Exchange:
2003 HIGH LOW
First Quarter $ 3.30 $ 0.99
Second Quarter 2.68 1.30
Third Quarter 3.09 2.05
Fourth Quarter 3.50 2.20
2002 HIGH LOW
First Quarter $ 4.56 $ 1.65
Second Quarter 3.69 1.65
Third Quarter 3.00 1.56
Fourth Quarter 2.80 1.97
Pursuant to the terms of the Supplemental Indenture to the Company's 10
1/2% Senior Notes (see Note 13 to the consolidated financial statements), the
Company was prohibited from paying dividends on its Common Stock or Preferred
Stock until after October 1, 2002, at the earliest, and thereafter only in the
event that the Company satisfies certain conditions. Such conditions were not
satisfied as of December 31, 2003 and 2002. (See Note 13 to the Consolidated
Financial Statements). The Company is further prohibited from paying dividends
on its Common Stock during such time as the full cumulative dividends on the
Preferred Stock have not been paid.
WHX's annual meeting will be held on Wednesday, June 2, 2004, at a place
and time to be announced. The record date for stockholders entitled to vote at
the meeting is April 20, 2004.
6
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR STATISTICAL WHX CORPORATION
(THOUSANDS OF DOLLARS)
2003 2002 2001 2000(a) 1999
----------- ----------- ----------- ----------- -----------
PROFIT AND LOSS(b)
Net sales $ 326,296 $ 386,393 $ 388,139 $ 1,519,436 $ 1,586,079
Income/ (loss) from continuing operations (169,208) (11,996) (95,705) (188,866) (25,797)
Net income (loss) applicable to
common stock $ (188,632) $ (52,758) $ 81,792 $ (201,652) $ (35,546)
BASIC INCOME (LOSS) PER SHARE:
Net income (loss) per share
applicable to common shares $ (35.08) $ (9.90) $ 16.35 $ (42.29) $ (6.72)
DILUTED INCOME (LOSS) PER SHARE:
Net income (loss) per share
applicable to common shares $ (35.08) $ (9.90) $ 9.62 $ (42.29) $ (6.72)
Total assets - continuing operations 406,146 834,388 884,257 805,523 2,580,132
Net assets of discontinued operations - - 57,182 51,366 41,595
Short -term debt 39,308
Long-term debt 190,092 249,706 432,454 481,783 844,641
(a) Includes the results of WPC for the period January 1, 2000 through November
16, 2000.
(b) Years 1999 through 2001 have been restated to reflect Unimast as a
discontinued operation.
NOTES TO FIVE-YEAR SELECTED FINANCIAL DATA
On November 16, 2000 the Company's WPC Group filed petitions seeking
reorganization under Chapter 11 of Title 11 of the United States Bankruptcy
Code, resulting in a non-cash charge of $133.8 million to provide a valuation
reserve against previously recorded net deferred tax assets. As a result of the
Bankruptcy Filing (see Note 3 to the Consolidated Financial Statements), the
Company has, as of November 16, 2000, deconsolidated the balance sheet of its
wholly owned subsidiary WPC. As a result of such deconsolidation, the
accompanying selected financial data does not include any of the assets or
liabilities of WPC or the operating results of WPC after November 16, 2000. As
more fully discussed in Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 3 to the Consolidated
Financial Statements, the Company agreed to provide additional funds to the WPC
Group amounting to $20.0 million. As a result, the Company recorded in the year
ended December 31, 2002, an equity loss in WPC up to the amount of such funding
commitments.
During 2003, 2002, 2001 and 2000, the Company did not make any purchases
of Common or Preferred Stock. During 1999 the Company purchased 1,198,100 of
Common Stock in open market transactions.
During 2003, 2002, 2001, and 1999 the Company purchased and retired
$17.7 million, $134.6 million, $36.4 million and $20.5 million, respectively,
aggregate principal amounts of 10 1/2% Senior Notes in the open market,
resulting in gains of $3.0 million, $42.5 million, $19.0 million, and $1.4
million, respectively.
In December 2001, the Company sold its interest in Wheeling-Downs Racing
Association, Inc. for $105.0 million in cash and recognized a gain of $88.5
million.
In July 2002, the Company sold the stock of Unimast, Inc., its wholly
owned subsidiary, for $95.0 million and recognized a gain of $11.9 million, net
of tax.
In the first quarter of 2002, WHX adopted the provisions of Statement of
Financial Standards No. 142 "Goodwill and Other Intangible Assets." ("SFAS 142")
As a result, WHX recorded a $44.0 million non-cash goodwill impairment charge.
This charge is shown as a cumulative effect of an accounting change. In
addition, as required by SFAS 142, as of January 1, 2002, goodwill is no longer
amortized.
During 2002, WHX recorded restructuring charges of $20.0 million
relating to the closure of certain Handy & Harman operations.
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In the third quarter of 2003 the Company recorded an $89.0 million
non-cash goodwill impairment charge relating to the following businesses: $38.5
million for specialty tubing, $47.0 million for precious metal plating, and $3.5
million for precious metal fabrication. The Company recorded these charges
because the fair value of these reporting units, as determined by estimated cash
flow projections, was less than the reporting units' carrying value.
A pre-tax, non-cash charge for the cost of early retirement incentives
of $11.5 million was recognized in the third quarter of 2003 as a special
termination benefit in accordance with Statement of Financial Accounting
Standards No. 88, "Employers' Accounting for Settlement and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits" ("SFAS 88"). In
addition, a curtailment occurred as a result of the break in service for WPC
Group employees that resulted in a pre-tax, non-cash charge of $36.6 million in
the third quarter of 2003, pursuant to SFAS 88.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Risk Factors and Cautionary Statements
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Exchange Act, including, in particular, forward-looking
statements under the headings "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 8. Financial Statements
and Supplementary Data." These statements appear in a number of places in this
Report and include statements regarding WHX's intent, belief or current
expectations with respect to (i) its financing plans, (ii) trends affecting its
financial condition or results of operations, and (iii) the impact of
competition. 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 10 1/2% Senior Notes in the amount of $92.8 million are due on
April 15, 2005. It is the Company's intention to refinance this obligation prior
to its scheduled maturity; however there can be no assurance that such
refinancing will be obtained. The Company's access to capital markets in the
future to refinance such indebtedness may be limited. If the Company were unable
to refinance this obligation, it would have a material adverse impact on the
liquidity, financial position and capital resources of WHX and would impact the
Company's ability to continue as a going concern. The financial statements do
not reflect any adjustments related to this matter;
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 SEC could continue to adversely affect the Company's results of
operations;
o In connection with the refinancing of the H&H credit facility in the
first quarter of 2004, WHX loaned $43.5 to H&H and received a subordinated note;
o The WPC Group has a large net operating tax loss carryforward. WPC was
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. The WPC
Group's tax attributes were available to the WHX Group through December 31,
2003, and are no longer available;
o Prior to the consummation of the POR, WHX was the sole stockholder of
WPC, the parent company of the WPC Group. The WPC Group has been identified as a
potentially responsible party under the Superfund law 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. The WPC Group entered
into a Settlement Agreement with the US EPA that resolves all of the US EPA's
pre-petition unsecured claims under the Superfund law and releases the WPC Group
from any future liability for such claims. The Bankruptcy Court approved the
Settlement Agreement by order entered June 13, 2003. In the event the WPC Group
8
is responsible for any environmental liabilities relating to the period prior to
the consummation of the POR, and is unable to fund these liabilities, claims may
be made against WHX for payment of such liabilities; and
o The new H&H financing agreements restrict cash payments to WHX. The
ability of WHX to liquidate liabilities arising in the ordinary course of
business through December 31, 2004 contemplates the sale of assets held at the
parent company level, which management intends to do as necessary.
Bankruptcy Filing and Plan of Reorganization of the WPC Group
A Chapter 11 Plan of Reorganization was confirmed by the Bankruptcy Court
on June 18, 2003 and was consummated on August 1, 2003. Pursuant to the terms of
the POR, among other things, the WPC Group ceased to be a subsidiary of WHX
effective August 1, 2003, and from that date forward has been an independent
company. See below for a chronological description of the Bankruptcy Filing and
the POR.
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 enabled the WPC Group to continue business operations as
debtors-in-possession.
On November 17, 2000, the Bankruptcy Court granted the WPC Group's motion
to approve a $290.0 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 (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 $35.0 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 $255.0 million. On January 2, 2002, the WPC
Group requested and received a reduction in the revolving loans, swing loans and
letter of credit accommodations to a maximum aggregate amount of up to $175.0
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 accommodations to a maximum aggregate of $160.0 million and to make
certain other related changes to the agreement. In connection with the
Bankruptcy Filing, WHX had guaranteed $30.0 million of the term loan portion of
the DIP Credit Agreement ("Term Loan") and deposited in a pledged asset account
$33.0 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 $30.0 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 $30.0 million of the Term Loan described above
was terminated and the $33.0 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. The DIP Credit Agreement was terminated and repaid
upon the consummation of the POR (see below). As discussed below, the WHX
participation interest was forgiven by WHX in connection with the consummation
of the POR.
WPC borrowings outstanding under the DIP Credit Agreement for revolving
loans totaled $137.2 million and $135.5 million at July 31, 2003 and December
31, 2002 respectively. Term Loans under the DIP Credit Agreement totaled $35.7
million and $35.2 million at July 31, 2003 and December 31, 2002, respectively.
Letters of credit outstanding under the facility totaled $2.8 million at July
31, 2003. At July 31, 2003, net availability under the DIP Credit Agreement was
$2.4 million. As a result of the consummation of the POR the DIP Credit
Agreement was repaid (except for the WHX participation described below).
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 owned a
$32.0 million participation interest in the Term Loan discussed above and held
other claims against WPC and WPSC totaling approximately $7.1 million, all of
which were forgiven in connection with the consummation of the POR. 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 July 31, 2003, the WPC Group
incurred cumulative net losses of $348.6 million. Pursuant to the terms of the
POR, WHX agreed to contribute $20.0 million to the WPC Group (see discussion
below pertaining to WHX Contributions). As a result of the Company's obligation
to fund $20.0 million to WPC Group, the Company recorded a $20.0 million charge
as an equity loss in WPC as of December 31, 2002. All conditions to the WHX
Contributions were satisfied effective upon consummation of the POR, and on
August 1, 2003, the WHX Contributions were made.
9
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 $32.0 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
Canfield Metals Coating Corporation ("CMCC") (formerly 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 CMCC.); (4) the termination of the Tax Sharing Agreements between
WHX and WPC; (5) WHX's delivery of 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 (the "WHX 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 CMCC, all occurred effective May
29, 2001. The acquisition of certain assets of CMCC closed on June 29, 2001. The
CMCC 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 WPSC (1) up to $5.0
million of loans and $5.0 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 $2.0 million of loans (for an
aggregate of $7.0 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 loans were not made), and (3) a $25.0 million contribution to a new
WPSC defined benefit pension plan contingent upon, among other things, a
confirmed WPSC Plan of Reorganization (item 3 was superceded by the WHX
Contributions described below). Through July 31, 2003, WHX had advanced $5.0
million of the loans and up to $5.5 million of financing. At July 31, 2003, the
outstanding balance of these advances was $5.0 million plus interest of $0.5
million, and $1.6 million, respectively. These advances, totaling $7.1 million,
were forgiven in connection with the consummation of the POR.
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 were granted super-priority claim status in WPSC's
Chapter 11 case and were collateralized 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 provided, among other things, that the Company could sell,
transfer or dispose of the stock of WPC free from the automatic stay imposed
under the Bankruptcy Code, and under specified circumstances, required WPC to
support certain changes to the WHX Plan. Additionally, the October Order
approved the terms of the Modified Labor Agreement ("MLA") by and among WPC,
WPSC and the USWA. WHX was not a party to the MLA. The MLA modified the then
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 was part of a comprehensive support arrangement that also involved
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 that 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.
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 $250.0 million federal loan guarantee. An affiliate of RBC
agreed to underwrite the loan if the guaranty was 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 was subject to the satisfaction of various
conditions on or before June 30, 2003, subsequently extended to August 15, 2003,
including, without limitation, resolution of the treatment of the WHX Pension
Plan that was 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. All such conditions were satisfied on or before August
1, 2003.
10
The amended RBC application contained a business plan that assumed a
confirmed Chapter 11 plan of reorganization for the WPC Group. As part of the
POR, the Company had conditionally agreed to make certain contributions (the
"WHX Contributions") to the reorganized company. Under the WHX Contributions,
the Company forgave the repayment of its claims against the WPC Group of
approximately $39.0 million and, additionally, contributed to the reorganized
company $20 million of cash, for which the Company received a note in the amount
of $10.0 million. The note was fully reserved upon receipt. (Such reserve is
continually evaluated and adjustments would be made to the reserve in the event
circumstances warrant.) The loan with the RBC closed on August 1, 2003 and all
conditions to the guaranty by the ESLGB were satisfied and the guaranty was
granted. The proceeds of the RBC Loan, among other things, were used to repay
the DIP creditors (except for WHX). In addition all conditions to the WHX
Contributions were satisfied and the WHX Contributions were made.
On June 18, 2003 the POR was confirmed by the Bankruptcy Court and on
August 1, 2003 it was consummated. Effective on August 1, 2003 the WPC Group
ceased to be a subsidiary of WHX and from that date forward has been an
independent company.
On March 6, 2003, the 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 Plan. WHX filed an answer to this complaint
on March 27, 2003, contesting the PBGC's action. On July 24, 2003, the Company
entered into an agreement among the PBGC, Wheeling-Pittsburgh Corporation
("WPC"), Wheeling-Pittsburgh Steel Corporation ("WPSC"), and the United
Steelworkers of America, AFL-CIO-CLC ("USWA") in settlement of matters relating
to the PBGC v. WHX Corporation, Civil Action No. 03-CV-1553, in the United
States District Court for the Southern District of New York ("Termination
Litigation"), in which the PBGC was seeking to terminate the WHX Plan. Under the
settlement, among other things, WHX agreed (a) that the WHX Plan, as it is
currently constituted, is a single employer pension plan, (b) to contribute
funds to the WHX Plan equal to moneys spent (if any) by WHX or its affiliates to
purchase WHX 10.5% Senior Notes ("Senior Notes") in future open market
transactions, and (c) to grant to the PBGC a pari passu security interest of up
to $50.0 million in the event WHX obtains any future financing on a secured
basis or provides any security or collateral for the Senior Notes.
Also under the settlement, all parties agreed that as of the effective date
of the POR, (a) no shutdowns had occurred at any WPC Group facility, (b) no
member of the WPC Group is a participating employer under the WHX Plan, (c)
continuous service for WPC Group employees was broken, (d) no WPC Group
employees will become entitled to "Rule of 65" or "70/80" Retirement Benefits
(collectively, "Shutdown Benefits") by reason of events occurring after the
effective date of the POR, and (e) the WHX Plan would provide for a limited
early retirement option to allow up to 650 WPSC USWA-represented employees the
right to receive retirement benefits based on the employee's years of service as
of July 31, 2003 with a monthly benefit equal to $40 multiplied by the
employee's years of service.
Finally, under the settlement, the PBGC agreed (a) that, after the
effective date of the POR, if it terminates the WHX Plan at least one day prior
to a WPC Group facility shutdown, WHX shall be released from any additional
liability to PBGC resulting from the shutdown, (b) to withdraw its claims in the
WPC Bankruptcy Proceedings, and (c) to dismiss the Termination Litigation.
A pre-tax, non-cash charge for the cost of early retirement incentives of
$11.5 million was recognized in the third quarter of 2003 as a special
termination benefit in accordance with Statement of Financial Accounting
Standards No. 88, "Employers' Accounting for Settlement and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits" ("SFAS 88"). In
addition, a curtailment occurred as a result of the break in service for WPC
Group employees that resulted in a pre-tax, non-cash charge of $36.6 million in
the third quarter of 2003, also pursuant to SFAS 88.
For WHX Plan funding purposes, the impact of the changes will not be
recognized until the next actuarial valuation which occurs as of January 1,
2004. The funding requirements will depend on many factors including those
identified above as well as future investment returns on WHX Plan assets. Based
on preliminary estimates, using the current statutory discount rate, WHX will be
required to make a contribution to the WHX Plan of approximately $6.0 million in
2004.
The agreement with the PBGC also contains the provision that WHX will not
contest a future action by the PBGC to terminate the WHX Plan in connection with
a future WPC Group facility shutdown. In the event that such a plan termination
occurs, the PBGC has agreed to release WHX from any claims relating to the
shutdown. However, there may be PBGC claims related to unfunded liabilities that
may exist as a result of a termination of the WHX Plan.
11
In connection with past collective bargaining agreements by and between the
WPC Group and the USWA, the WPC Group was 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 had previously and separately
agreed to be contingently liable for a portion of the OPEB Obligations. WHX's
contingent obligation would have been triggered in the event that the WPC Group
failed to satisfy its OPEB Obligations. WHX's contingent obligation was 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 was 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. As a result of the consummation of the
POR, WHX's contingent liability for the OPEB Obligation was eliminated.
As a result of the consummation of the POR and the related WHX
Contributions, the remaining balance in the loss in excess of investment account
of $0.5 million was reversed into income in the third quarter of 2003.
OVERVIEW
WHX is a holding company that has been structured to invest in and manage a
diverse group of businesses. 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. 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. Effective upon the consummation of the POR on August 1, 2003, 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, ceased to be a subsidiary of WHX and from that day forward has
been an independent company.
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.
12
The following table presents information about reported segments for the years
ended December 31:
(in thousands)
2003 2002 2001
--------- --------- ---------
Revenue
Precious Metal $ 84,572 $ 142,260 $ 168,308
Wire & Tubing 121,939 132,194 133,621
Engineered Materials 119,785 111,939 86,210
--------- --------- ---------
Consolidated revenue $ 326,296 $ 386,393 $ 388,139
========= ========= =========
Segment operating income (loss)
Precious Metal $ (47,581) $ (3,536) $ 7,982
Wire & Tubing (42,566) (14,071) 3,407
Engineered Materials 8,755 9,624 7,901
--------- --------- ---------
Subtotal (81,392) (7,983) 19,290
Unallocated corporate expenses 16,376 17,374 16,732
Pension - curtailment & special termination benefits 48,102 -- --
Loss on disposal of assets (a) 6,286 2,576 18
Goodwill amortization -- -- 7,393
--------- --------- ---------
Operating income (loss) (152,156) (27,933) (4,853)
Interest expense 19,166 27,257 46,969
Equity in loss of WPC -- 20,000 --
Gain on disposition of WPC 534 -- --
Gain on early retirement of debt 2,999 42,491 19,011
Gain on sale of Wheeling-Downs -- -- 88,517
Other income (expense) (222) (3,412) 11,130
--------- --------- ---------
Income (loss) before taxes, discontinued operations
and cumulative effect of an accounting change (168,011) (36,111) 66,836
Income tax expense (benefit) 1,197 (24,115) (28,869)
Income from discontinued operations - net of tax -- 10,601 5,416
Gain on sale of Unimast - net of tax of $6,886 -- 11,861 --
--------- --------- ---------
Income (loss) before cumulative effect of an
accounting change (169,208) 10,466 101,121
Cumulative effect of an accounting change - net of tax -- (44,000) --
--------- --------- ---------
Net income (loss) $(169,208) $ (33,534) $ 101,121
========= ========= =========
(a) Loss (gain) on disposal of assets includes the following amounts by segment
for 2003 and 2002, respectively: Precious Metal - $4,557 and ($749); Wire & Tube
- - $1,485 and $2,044; Engineered Materials - $0 and $764
13
2003 COMPARED TO 2002
Sales in 2003 were $ 326.3 million compared with $386.4 million in 2002.
Sales decreased by $57.7 million at the Precious Metal Segment and $10.3 million
at the Wire & Tubing Segment. Sales increased by $7.8 million at the Engineered
Materials Segment. Gross profit increased in the 2003 period to 18.8% from
17.7%. This increase is primarily due to a gain from the liquidation of certain
precious metal inventory of $3.2 million in 2003 and $7.4 million in write downs
of inventory to disposal values and reserves for excess and slow moving
inventory at the Company's stainless steel wire facilities in 2002 as well as
the absence in 2003 of lower margin sales associated with the Fairfield, CT
facility included in the 2002 period. This was partially offset in 2003 by
increased raw material costs and a $1.3 million lower of cost or market
adjustment for precious metal inventory. See the segment discussion for more
detailed analysis of these items.
Selling, general and administrative expenses decreased $3.6 million from
$73.6 million in 2002 to $70.0 million in 2003. This resulted from decreased
pension expense of $2.6 million, a $2.2 million gain on insurance proceeds, and
the elimination of SG&A expenses associated with the facilities that were shut
down in the second half of 2002. Partially offsetting theses decreases is a $3.5
million charge related to a reduction of executive, administrative and
information technology personnel at H&H.
Operating loss for 2003 was $152.2 million compared to a $27.9 million
operating loss for 2002. The 2003 operating results include a $48.1 million
non-cash pension curtailment and special termination benefit charge related to
the consummation of the WPC Group Plan of Reorganization and a non-cash goodwill
impairment charge of $89.0 million. Operating loss at the segment level was
$81.4 million in 2003 compared to an operating loss of $8.0 million in 2002. The
2003 operating results at the segment level includes the aforementioned non-cash
goodwill impairment charge of $89.0 million relating to the following segments:
$38.5 million for wire and tubing and $50.5 million for precious metals. The
Company recorded these charges because the fair value of the reporting units, as
determined by estimated cash flow projections, was less than the reporting
units' carrying value. Also included in the 2003 operating results is a $3.5
million charge for employee separation and related expenses discussed above, a
$2.2 million gain on insurance proceeds, a $3.2 million gain on the liquidation
of certain precious metal inventories, and a $1.3 million lower of cost or
market charge related to precious metals inventory. Additionally, the 2003
results include approximately $4.1 million of costs associated with
restructuring programs at Handy & Harman's Precious Metal and Wire & Tubing
Segments. These costs were not included in the restructuring charge recorded in
2002 (see below). The 2003 period also benefited from the elimination of
operating losses associated with operations that were closed in 2002. The 2002
period includes a $12.0 million and $8.0 million restructuring charge related to
the Company's Precious Metal and Wire & Tubing Segments, respectively. The 2002
period also includes a $2.9 million write down of inventory to disposal value
and a $4.5 million reserve for excess and slow moving inventory at the Company's
stainless steel wire operations.
Unallocated corporate expenses decreased from $17.4 million to $16.4
million. This decrease is primarily related to a decrease in net pension expense
of $2.3 million for the WHX Pension Plan partially offset by increased legal and
insurance expense. The decreased pension expense is primarily related to the
reduction in active participants as a result of the POR. The POR provides, among
other things, that no member of the WPC Group is a participating employer under
the WHX Plan and that continuous service for WPC Group employees was broken.
The Company received cash proceeds of $13.0 million on the sale of real
estate associated with operations that were closed in 2002 and 2003. Losses on
these sales are included in losses on disposals of assets of $6.3 million in
2003. In connection with the real estate sales the Company retained title to a
parcel of land in Fairfield, CT. This parcel is classified as an asset held for
sale, in the amount of $2.0 million, at December 31, 2003.
Loss on disposal of assets amounted to $2.6 million in 2002. The Company
received cash proceeds of $8.6 million in 2002 primarily related to the sale of
machinery and equipment associated with the Fairfield, CT facility.
Interest expense in 2003 decreased by $8.1 million to $19.2 million from
$27.3 million in 2002. Handy & Harman's interest expense decreased from $9.5
million in 2002 to $7.6 million in 2003, reflecting lower borrowings and lower
interest rates. The remaining $6.2 million of this decline in interest expense
is primarily related to the early retirement of $17.7 million and $134.6 million
of 10 1/2 % Senior Notes in 2003 and 2002, respectively.
As part of the amended Chapter 11 Plan of Reorganization for the WPC Group,
WHX had agreed conditionally to provide additional funds to WPSC amounting to
$20.0 million. As a result of the Company's obligation to fund $20 million to
WPC, WHX had recorded a $20.0 million charge as an equity loss in WPC in the
accompanying Consolidated Statement of Operations for the year ended December
31, 2002. On August 1, 2003, upon consummation of the POR, WHX contributed $20.0
million in cash to the reorganized company.
14
Other income (expense) was an expense of $0.2 million in 2003. The 2003
expense included transaction losses of $2.3 million, $0.6 million loss on an
interest rate swap, and other expenses of $1.3 million partially offset by net
investment earnings of $4.0 million.
Other income (expense) was an expense of $3.4 million in 2002. The 2002
expense included a $4.8 million loss on an interest rate swap, other expenses of
$1.2 million, partially offset by net investment earnings of $2.6 million.
In 2003 the Company recognized a $3.0 million gain on the early retirement
of $17.7 million principal amount of 10 1/2% Senior Notes.
In 2002 the Company recognized a $42.5 million gain on the early retirement
of $134.6 million principal amount of 10 1/2% Senior Notes.
In 2003 a tax provision of $1.2 million was recorded for foreign and state
taxes. The Company has recorded a valuation allowance related to the tax benefit
associated with the current year loss due to the uncertainty of realizing these
benefits in the future. The previously recognized net deferred tax asset
resulted primarily from the recording of additional minimum pension liability in
2002. Accordingly, the reversal of the net deferred tax asset in 2003 was
charged to other comprehensive income.
In 2002, continuing operations recognized a tax benefit of $24.1 million on
a $36.1 million pre-tax loss. As a result of the termination of the Tax Sharing
Agreement with the WPC Group, the Company recognized the benefit of the WPC
Group's current year losses and net operating loss carryforwards to offset
taxable income from WHX's other 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 approximately $25.6 million of Unimast
debt. In the third quarter, the Company recognized a pre-tax gain on the sale of
approximately $18.6 million. The gain on sale is net of closing costs,
transaction fees, employee related payments, and other costs and expenses. 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.
Net loss for 2003 amounted to $169.2 million, or $35.15 loss per share of
common stock after adjusting for preferred stock dividends, as compared to a net
loss of $33.5 million, or $9.90 per basic share of common stock after adjusting
for preferred stock dividends.
The comments that follow compare revenues and operating income by operating
segment for the years ended 2003 and 2002:
15
PRECIOUS METAL
Sales for the Precious Metals Segment decreased $57.7 million from $142.3
million in 2002 to $84.6 million in 2003. The decrease was due to the closing of
the Fairfield, CT facility at the end of the third quarter of 2002 and the
closure of the Fontana, CA facility in 2003. Operating losses increased $44.1
million from $3.5 million in 2002 to $47.6 million in 2003. Included in the 2003
period is a $50.5 million non-cash charge for goodwill impairment, $3.2 million
in gains resulting from the liquidation of certain precious metals, a $1.3
million lower of cost or market adjustment related to precious metals, a $2.2
million gain on insurance proceeds and $1.1 million of severance related
expenses allocated to this segment from the reduction in salaried staff at H&H.
The 2003 period also includes approximately $2.9 million of costs associated
with the restructuring program announced in 2002 (see below). These costs were
not included in the restructuring charge recorded in 2002. Also included in the
2003 period is a decrease in operating income of approximately $2.0 million due
to reduced margins in the precious metal plating units. Included in the 2002
period is a restructuring charge of $12.0 million, as described below, and
additional costs of $1.4 million to maintain the employee base until operations
ceased. Also included in the 2002 period is operating income as a result of
increased demand from silver customers prior to the closure of the Fairfield, CT
facility.
In April 2002, Handy & Harman announced its decision to exit certain of its
precious metal activities. The affected product lines were manufactured at Handy
& Harman's Fairfield, CT and East Providence, RI facilities. The decision to
exit these operating activities resulted in a restructuring charge of $12.0
million. This charge included $6.6 million for employee separation expenses,
$0.6 million of contractual obligations, and $4.8 million for costs to close the
facilities, including refining charges for inventory remaining after operations
ceased. In addition, the company incurred $1.4 million of incremental costs
related to the restructuring efforts in the second half of 2002 to maintain the
customer base in order to fulfill customer orders and complete the shutdown
activities. An additional $2.9 million of associated costs were incurred during
2003. Such costs were not included in the aforementioned restructuring charge.
The Fairfield, CT facility was sold in 2003 for $8.0 million. The Company
retained title to a parcel of land in Fairfield, CT. This parcel is classified
as an asset held for sale, in the amount of $2.0 million, on the consolidated
balance sheet at December 31, 2003.
WIRE & TUBING
Sales for the Wire & Tubing Segment decreased $10.3 million from $132.2
million in 2002 to $121.9 million in 2003. This decline was primarily due to the
shutdown of the Liversedge, England and Willingboro, N.J. specialty wire
facilities at the end of 2002. Additionally, the 2003 period reflects continued
weakness in the semiconductor fabrication and telecommunications markets.
Partially offsetting these decreases were increased sales at the Company's
domestic and foreign units that service the appliance industry. Operating loss
increased by $28.5 million from $14.1 million in 2002 to a loss of $42.6 million
in 2003. Included in the 2003 period is a non-cash goodwill impairment charge of
$38.5 million related to this segment's specialty tubing operations and $1.5
million of severance related expenses allocated to this segment from the
reduction in salaried staff at H&H. Operating income was also negatively
impacted by the continued weakness in the semiconductor fabrication and
telecommunications markets and increased raw material costs. The 2003 period
also includes approximately $1.2 million of costs associated with the
restructuring program announced in 2002 (see below). These additional costs were
not included in the restructuring charge recorded in 2002. Offsetting this
decrease is the elimination of operating losses associated with the facilities
shut down at the end of 2002. The 2002 period included Wire Group charges for
restructuring of $8.0 million, as further described below, accelerated
depreciation of $3.4 million during the remaining operating period which ended
December 31, 2002, $2.9 million in charges related to the write down of
inventories located at the Liversedge, England and Willingboro, NJ facilities
and charges of $4.5 million for excess and slow moving inventories and
allowances for doubtful accounts.
In September 2002, the Company decided to exit certain of its stainless
steel wire activities. The affected operations were at H&H's facilities in
Liversedge, England and Willingboro, NJ. The decision to exit these operating
activities resulted in charges of $10.9 million, including restructuring charges
of $8.0 million. The components of the $8.0 million restructuring charge are:
$2.8 million in employee separation expenses, $4.8 million for the write-down of
production supplies and consumables and facility closing costs, and $0.4 million
in contractual obligations. The remainder of the charge amounted to $2.9 million
for the write-down of inventory to disposal value. This charge was included in
cost of sales. In addition, the Company incurred additional costs related to the
restructuring of approximately $1.2 million, above the aforementioned separation
expenses, in 2003 to maintain the employee base in order to fulfill customer
orders and complete shutdown activities. Such were not accruable at December 31,
2002 and are not included in the aforementioned restructuring charge. The
Company received cash proceeds of $2.7 million in 2003 from the sale of related
land and buildings. As discussed above, the Company incurred accelerated
depreciation expense of approximately $3.4 million on equipment values during
the fourth quarter of 2002.
16
ENGINEERED MATERIALS
Sales for the Engineered Materials segment increased $7.9 million from
$111.9 million in 2002 to $119.8 million in 2003. This increase in sales was
primarily due to market share gains and new products in this segment's fastener
business, partially offset by a decline in sales in the construction and
appliance market in this segment's electro-galvanizing business. Operating
income decreased $.8 million from $9.6 million in 2002 to $8.8 million in 2003.
This decrease was primarily due to a decline in sales in the construction and
appliance markets in this segment's electro-galvanizing business. The 2003
period also included $0.9 million of severance related expenses allocated to
this segment from the reduction in salaried staff at H&H. Included in the 2002
period were costs of $1.0 million associated with a litigation settlement.
2002 COMPARED TO 2001
Sales in 2002 were $386.4 million compared with $388.1 million in 2001.
Sales decreased by $26.0 million at the Precious Metal Segment and $1.4 million
at the Wire & Tubing Segment. Sales increased by $25.7 million at the Engineered
Materials Segment. Gross profit in 2002 and 2001was 17.7% and 17.9%,
respectively.
Selling, general and administrative expenses decreased $0.7 million from
$74.3 million in 2001 to $73.6 million in 2002. Excluding the $7.4 million
favorable impact from the non-amortization of goodwill in 2002, selling, general
and administrative expenses increased by $6.7 million. This resulted from
increased pension expense of $3.1 million, insurance costs, a legal settlement,
and bad debt expenses partially offset by the impact of non-recurring expenses
in 2001.
17
Operating loss at the segment level was $8.0 million in 2002 compared to
operating income of $19.3 million in 2001. Operating results for the Precious
Metal and the Wire & Tubing Segments declined by $11.5 million and $17.5
million, respectively. These declines include restructuring charges of $12.0
million in the Precious Metal segment and $8.0 million in the Wire & Tubing
segment. Operating income for the Engineered Materials Segment improved by $1.7
million in 2002.
Unallocated corporate expenses increased from $16.7 million in 2001 to
$17.4 million in 2002. This resulted from an increase in unallocated pension
expense of $3.1 million offset by non-recurring costs and expenses incurred in
2001.
Interest expense in 2002 decreased by $19.7 million to $27.3 million from
$47.0 million in 2001. Handy & Harman's interest expense decreased from $16.0
million in 2001 to $9.5 million in 2002, reflecting lower borrowings and lower
interest rates. The remaining $13.2 million of this decline in interest expense
was primarily related to the early retirement of $134.6 and $36.4 million of 10
1/2 % Senior Notes in 2002 and 2001, respectively.
As part of the amended Chapter 11 Plan of Reorganization for the WPC Group,
WHX agreed to provide additional funds to WPSC amounting to $20.0 million. As a
result of the Company's obligation, WHX recorded a $20.0 million charge as
equity loss in WPC in the accompanying Consolidated Statement of Operations for
the year ended December 31, 2002. Such contribution was made to the WPC Group on
August 1, 2003 upon consummation of the POR.
Other income (expense) was an expense of $3.4 million for 2002 compared to
$11.1 million of income for 2001. The income in 2001 was primarily related to
income from WHX Group's interest in Wheeling Downs Racing Association, Inc. of
$15.0 million and net investment losses of $6.9 million. The 2002 period loss
included a $4.8 million loss on an interest rate swap, other expenses of $1.2
million, partially offset by net investment earnings of $2.6 million.
In December 2001, the WHX Group sold its 50% interest in Wheeling Downs
Racing Association, Inc. for $105 million in cash, resulting in an $88.5 million
pre-tax gain. In 2002, WHX used a portion of these proceeds in the first quarter
of 2002 to purchase and retire $82.5 million aggregate principal amount of
Senior Notes in the open market for $50.6 million.
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 approximately $25.6 million of Unimast
debt. In the third quarter, the Company recognized a pre-tax gain on the sale of
approximately $18.6 million. The gain on sale was net of closing costs,
transaction fees, employee related payments, and other costs and expenses. 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 2002 the Company recognized a $42.5 million gain on the early retirement
of $134.6 million principal amount of 10 1/2% Senior Notes.
In 2002, continuing operations recognized a tax benefit of $24.1 million on
$36.1 million of pre-tax loss. As a result of the termination of the Tax Sharing
Agreement with the WPC Group, the Company recognized the benefit of the WPC
Group's current year losses and net operating loss carryforwards to offset
taxable income from WHX's other operations.
In 2001, continuing operations recognized a tax benefit of $28.9 million on
$66.8 million pre-tax income. As a result of the termination of the Tax Sharing
Agreement with the WPC Group, the Company recognized the benefit of the WPC
Group's current year losses to offset taxable income from WHX's other
operations. The Company was also able to recognize additional benefits from net
operating losses previously unavailable to the Company.
Net loss for 2002 amounted to $33.5 million, or $9.90 loss per share of
common stock after adjusting for preferred stock dividends, as compared to net
income of $101.1 million, or $16.35 per basic share of common stock after
adjusting for preferred stock dividends.
The comments that follow compare revenues and operating income by operating
segment for the years ended 2002 and 2001:
18
PRECIOUS METAL
- --------------
Sales for the Precious Metals Segment decreased $26.0 million from $168.3
million in 2001 to $142.3 million in 2002. Approximately $10.0 million of this
decrease was due to a temporary shutdown as a result of a fire at Sumco Inc.,
which occurred on January 20, 2002. The balance of the decrease was due to the
closing of the Fairfield, CT facility at the end of the third quarter of 2002 as
well as reduced volume due to the slowdown in the economy. Operating income
decreased $11.5 million from $8.0 million in 2001 to a loss of $3.5 million in
2002. Included in the 2001 period was a $3.3 million precious metal lower of
cost or market adjustment which was partially offset by favorable precious metal
gains of $1.0 million. Included in the 2002 period was a restructuring charge of
$12.0 million, as described below, and additional costs of $1.4 million to
maintain the employee base until operations ceased. Excluding the 2001 precious
metal reserve and precious metal gains and the 2002 restructuring charge and
related expense, operating income decreased by $0.3 million, primarily due to
reduced revenue resulting from the severe fire damage at Sumco Inc., further
described below, partially offset by increased demand from our silver customers
prior to closure of the Fairfield, CT facility.
In April 2002, Handy & Harman announced its decision to exit certain of its
precious metal activities. The affected product lines were manufactured at Handy
& Harman's Fairfield, CT and East Providence, RI facilities. The decision to
exit these operating activities resulted in a restructuring charge of $12.0
million. This charge included $6.6 million for employee separation expenses
(approximately 251 employees), $0.6 million of contractual obligations, and $4.8
million for costs to close the facilities, including refining charges for
inventory remaining after operations ceased. As of December 31, 2002 the Company
had received $8.5 million from the sale of certain equipment.
19
WIRE & TUBING
Sales for the Wire & Tubing Segment decreased $1.4 million from $133.6
million in 2001 to $132.2 million in 2002 due to continued weakness in the
semiconductor fabrication and telecommunications markets. Partially offsetting
this reduction was increased sales at the Company's domestic and foreign units
that serve the appliance industry, and increased sales of tubing products to the
medical industry. Operating income decreased by $17.5 million from $3.4 million
in 2001 to a loss of $14.1 million in 2002. Included in the 2001 period were
charges for inventory reserves of approximately $2.5 million for the Wire Group.
The 2002 period included Wire Group charges for restructuring of $8.0 million,
as further described below, accelerated depreciation of $3.4 million during the
remaining operating period which ended December 31, 2002, $2.9 million in
charges related to the write down of inventories located at the Liversedge,
England and Willingboro, NJ facilities and charges of $4.5 million for excess
and slow moving inventories and allowances for doubtful accounts.
In September 2002, the Company decided to exit certain of its stainless
steel wire activities. The affected operations were at H&H's facilities in
Liversedge, England and Willingboro, NJ. The decision to exit these operating
activities resulted in charges of $10.9 million, including restructuring charges
of $8.0 million. The components of the $8.0 million restructuring charge were :
$2.8 million in employee separation expenses (approximately 121 employees), $4.8
million for the write-down of production supplies and consumables and facility
closing costs, and $0.4 million in contractual obligations. The remainder of the
charge amounted to $2.9 million for the write-down of inventory to disposal
value. This charge is included in cost of sales.
ENGINEERED MATERIALS
Sales for the Engineered Materials segment increased $25.7 million from
$86.2 million in 2001 to $111.9 million in 2002, primarily from the purchase of
CMCC on June 29, 2001, that contributed an increase of $20.8 million in sales
for the year. The remainder of the increase resulted from an increase in the
customer base for product lines which were introduced in 2001. Operating income
increased $1.7 million from $7.9 million in 2001 to $9.6 million in 2002 as a
result of the inclusion of CMCC's results for the entire year and the
aforementioned growth of new product lines, partially offset by the costs of a
litigation settlement in the fourth quarter of 2002.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Management believes that cash on hand, investments, and future operating
cash flow will enable the WHX Group to meet its cash needs for the next twelve
months.
The WHX 10 1/2% Senior Notes in the amount of $92.8 million are due on
April 15, 2005. It is the Company's intention to refinance this obligation prior
to its scheduled maturity; however there can be no assurance that such
refinancing will be obtained. The Company's access to capital markets in the
future to refinance such indebtedness may be limited. If the Company were unable
to refinance this obligation, it would have a material adverse impact on the
liquidity, financial position and capital resources of WHX and would impact the
Company's ability to continue as a going concern. The financial statements do
not reflect any adjustments related to this matter.
The new H&H financing agreements (see below) restrict cash payments to WHX.
The ability of WHX to liquidate liabilities arising in the ordinary course of
business through December 31, 2004 contemplates the sale of assets held at the
parent company level, which management intends to do as necessary.
Cash flows provided by (used in) operating, investing and financing
activities for 2003 totaled $76.2 million, $(38.9) million and ($13.7) million,
respectively. Short-term trading investments and related short-term borrowings,
reported as cash flow from operating activities, provided a net $97.4 million of
funds in 2003 versus using $36.5 million in 2002. Working capital accounts
(excluding cash, short-term investments, short-term borrowings and current
maturities of long term debt) used $9.3 million of funds. Other current assets
provided $0.3 million. Accounts receivable provided $1.2 million, inventories
provided $27.1 million, trade payables used $32.9 million, and other current
liabilities used $5.1 million. Other non working capital items used $3.4
million. On August 1, 2003, upon consummation of the POR, the Company
contributed $20.0 million to the reorganized WPC Group.
20
H&H's revolving credit facility existing at December 31, 2003 was scheduled
to mature on July 31, 2004. On March 31, 2004, H&H obtained new financing
agreements to replace and repay its existing Senior Secured Credit Facilities,
including the revolving credit facility. The new financing agreements include a
$70.0 million revolving credit facility and a $22.2 million Term A Loan with
Congress Financial Corporation ("Congress Facilities") and a $71.0 million Term
B Loan with Ableco Finance LLP ("Ableco"). Concurrently with the new financing
agreements, WHX loaned $43.5 million to H&H to repay, in part, the Senior
Secured Credit Facilities. Such loan is subordinated to the loans from Congress
and Ableco. In addition, WHX deposited $5.0 million of cash with Ableco as
collateral security for the H&H obligation. Portions of the cash collateral may
be returned to WHX prior to maturity of the Term B Loan if H&H meets and
maintains certain defined leverage ratios.
The new revolving credit facility provides for up to $70.0 million of
borrowings dependent on the levels of and collateralized by eligible accounts
receivable and inventory. The new revolving credit facility provides for
interest at LIBOR plus 2.75% or the U.S. Base rate plus 1.00%. The Congress
facilities mature on March 31, 2007. On March 31, 2004 H&H had approximately
$4.0 million of funds available under the new revolving credit facility after
deducting $10.0 million of excess availability required at closing ($5.0 million
required thereafter). The Term Loan A is collateralized by eligible equipment
and real estate, and provides for interest at LIBOR plus 3.25% or the prime rate
plus 1.5%. Borrowings under the Congress Facilities are collateralized by first
priority security interests in and liens upon all present and future stock and
assets of H&H and its subsidiaries including all contract rights, deposit
accounts, investment property, inventory, equipment, real property, and all
products and proceeds thereof. The principal of the Term Loan A is payable in
monthly installments of $299,000. The Congress Facilities contain affirmative,
negative, and financial covenants (including minimum EBITDA, maximum leverage,
and fixed charge coverage, and restrictions on cash distributions that can be
made to WHX).
The Ableco $71.0 million Term B Loan matures on March 31, 2007 and provides
for annual payments based on 40% of excess cash flow as defined in the
agreement. Interest is payable monthly at the Prime Rate plus 8%. At no time
shall the Prime Rate of interest be below 4%. The Term B Facility has a second
priority security interest in and lien on all assets of H&H, subject only to the
prior lien of the Congress Facilities. The Term B facility contains affirmative,
negative, and financial covenants (including minimum EBITDA, maximum leverage,
and fixed charge coverage, and restrictions on cash distributions that can be
made to WHX).
In March 2004, H&H's wholly owned Danish subsidiary obtained new financing
agreements to replace and repay its existing debt which had been issued under a
multi-currency facility within the existing H&H Senior Secured Credit
Facilities. The new Danish facilities are with a Danish Bank and include a
revolving credit facility and term loans. At March 31, 2004 there was
approximately $0.5 million outstanding under the new revolving credit facility
and $6.4 million outstanding under the term loans.
On July 30, 1998, H&H entered into its prior credit facility, a $300.0
million Senior Credit facility ("H&H Facilities") with Citibank, N.A., as agent,
which was refinanced on March 31, 2004. Borrowings outstanding under the H&H
Facilities at December 31, 2003 totaled $129.1 million. Letters of credit
outstanding under the H&H Facilities were $12.7 million at December 31, 2003.
Total funds available under the H&H Facilities at December 31, 2003 were $17.8
million. In 2003, 2002 and 2001, H&H received capital contributions of $8.0
million, $5.0 million and $6.3 million, respectively from WHX in order to remain
in compliance with certain financial covenants. Such funds were utilized to
reduce H&H debt.
The H&H Facilities contained provisions restricting cash payments to WHX.
The agreement allowed the payment of management fees, income taxes pursuant to
tax sharing agreements, and certain other expenses. In addition H&H could pay
dividends under certain conditions. At December 31, 2003 the net assets of H&H
amounted to $111.1 million, all of which was restricted as to the payment of
dividends to WHX.
In 2003, the Company purchased and retired $17.7 million aggregate
principal amount of the Notes in the open market resulting in a gain of $3.0
million, and a use of cash of $14.3 million. As a result of the 2003 purchases
future cash interest expense will be reduced by $1.9 million annually. Other
retirement of long-term debt used $2.6 million in 2003.
21
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 July 31, 2003, WHX had balances due from WPSC totaling
$7.1 million in the form of advances and liquidity support. As part of the POR
the Company agreed to make certain contributions to the reorganized company. In
connection with the consummation of the POR, on August 1, 2003 the Company made
the WHX contributions, which consisted of foregoing repayment of the above
claims and contributing $20.0 million in cash to the reorganized company.
In 2003, 2002 and 2001, $13.1, $9.3 and $11.9 million was spent on capital
improvements in the WHX Group.
Proceeds from the sale of fixed assets amounted to $13.0 million in 2003.
This is primarily related to the sale of facilities in Fairfield, CT, Fontana,
CA, , Liversedge, U.K, and Willingboro, NJ.
In 2003 the Company purchased an aircraft for $19.3 million, which it sold
in the first quarter of 2004 for $19.3 million. The aircraft is included in
other current assets on the Company's consolidated balance sheet at December 31,
2003.
The estimated minimum funding requirements for the WHX Pension Plan in
2004, 2005, 2006 and 2007 would equal $6 million, $1 million, $21 million and $3
million, respectively, based on the current funding assumptions and a Current
Liability interest rate (the rate mandated under federal minimum funding rules)
of 6%. The plan is very close to a fully funded status, which is why
contributions drop significantly in 2007 following the larger contribution in
2006. Because the plan is just below a fully funded status, funding projections
are especially sensitive to alternative Current Liability interest rate
assumptions. For example, if the Current Liability interest rate as of January
1, 2005 were 6.5% even if all other years remain at 6%, minimum contributions
would be $6 million, $13 million, $0, and $1 million for the years 2004 through
2007. A Current Liability interest rate of 6% reflects the current interest rate
environment and the April 2004 passage of new pension funding rules by Congress.
As of December 31, 2003, the WHX Group had consolidated cash of $42.0
million, as compared to $115.8 million of consolidated cash and short-term
investments, net of related investment borrowings at December 31, 2002. The
decrease in cash and short term investments in 2003 includes the purchase of an
aircraft for $19.3 million (which was sold in March 2004), a contribution of
$20.0 million to the WPC Group, the payment of WHX term loan interest in the
amount of $10.6 million, the payment of $14.3 million for the purchase and
retirement of $17.7 million principal amount of 10 1/2 % Senior Notes.
As a result of the termination of the Tax Sharing Agreement with the WPC
Group, the Company was able to utilize significant income tax loss carry
forwards to minimize its actual income tax payments, so long as the WPC Group
remained as a member of the WHX consolidated tax return. The WPC group ceased to
be a member of the WHX consolidated tax return effective August 1, 2003. In
fiscal year 2003 the Company recorded a valuation allowance related to the tax
benefit associated with the current year loss due to the uncertainty of
realizing these benefits in the future.
Short-term liquidity is dependent, in large part, on cash on hand,
investments, 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 satisfied its working
capital requirements through cash on hand, investments, borrowing availability
under the H&H Facilities and funds generated from operations. The WHX Group
believes that, cash on hand, investments, and funds available under the new H&H
credit 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 economic conditions, could materially
affect the WHX Group's results of operations, financial condition and liquidity.
As previously discussed the WHX 10 1/2% Senior Notes in the amount of $92.8
million are due on April 15, 2005. It is the Company's intention to refinance
this obligation prior to its scheduled maturity; however there can be no
assurance that such refinancing will be obtained. The Company's access to
capital markets in the future to refinance such indebtedness may be limited. If
the Company were unable to refinance this obligation, it would have a material
adverse impact on the liquidity, financial position and capital resources of WHX
and would impact the Company's ability to continue as a going concern. The
financial statements do not reflect any adjustments related to this matter.
As of December 31, 2003, the total of the WHX Group's future contractual
commitments, including the repayment of debt obligations (adjusted for the March
31, 2004 refinancing of the H&H credit facility) is summarized as follows:
22
Payments Due by Period
- ------------------------------------------------------------------------------------
Contractual
Obligations Total 2004 2005 2006 2007 thereafter
- ------------------------------------------------------------------------------------
Long-term Debt $229,400 $ 40,056 $ 96,887 $ 4,070 $ 75,073 $ 13,314
Operating Leases $ 5,582 $ 1,683 $ 1,660 $ 1,326 $ 913 $ 7
It is not the Company's usual business practice to enter into off-balance
sheet arrangements such as guarantees on loans and financial commitments,
indemnification arrangements, and retained interests in assets transferred to an
unconsolidated entity for securitization purposes. Consequently, the Company has
no off-balance sheet arrangements that have, or are reasonably likely to have, a
material current or future effect on its financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
At December 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 satisfies certain
conditions set forth in the Indenture. Such conditions were not satisfied at
December 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 December 31, 2003, preferred dividends in arrears
totaled $63.1 million.
In addition to the above obligations, certain customers and suppliers of
the H&H Precious Metal Segment choose to do business on a "pool" basis. Such
customers or suppliers o furnish precious metal to H&H for return in fabricated
form (customer metal) or for purchase from or return to the supplier. When the
customer's precious metal is returned in fabricated form, the customer is
charged a fabrication charge. The value of consigned precious metal is not
included in the Company's balance sheet. To the extent that the quantity of
customer and supplier precious metal, as well as precious metal owned by the
Company, does not meet operating needs, the Company can lease precious metal. At
December 31, 2003, 1,605,000 ounces of silver and 14,617 ounces of gold were
leased to the Company under a consignment facility. This consignment facility
was terminated on March 30, 2004 and H&H purchased approximately $15.0 million
of precious metal.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with generally accepted accounting
principles in the United States of America. Preparation of these financial
statements requires the Company to make estimates and judgements that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to bad debts,
inventories, intangibles, income taxes, pensions and other post-retirement
benefits, and contingencies and litigation. Estimates are based on historical
experience and various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgements about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 to the consolidated financial statements, included
elsewhere in this Form 10-K, includes a summary of the significant accounting
policies and methods used in the preparation of the Company's financial
statements. The following is a brief discussion of the more significant
accounting policies and methods used by the Company.
23
Principles Of Consolidation
The Consolidated Financial Statements include the accounts of all
subsidiary companies. Wheeling-Pittsburgh Corporation ("WPC") and its
subsidiaries, which had been subsidiaries of the Company, ceased to be
subsidiaries on August 1, 2003. On November 16, 2000, 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 ("Bankruptcy
Filing") (see Note 1). As a result of the Bankruptcy Filing, the Company , as of
November 16, 2000, deconsolidated the balance sheet of its wholly owned
subsidiary WPC. Accordingly, the accompanying consolidated balance sheets at
December 31, 2003 and 2002 do not include any of the assets or liabilities of
WPC, and the accompanying Consolidated Statement of Operations and the
Consolidated Statement of Cash Flows exclude WPC. As discussed in Note 3, a
Chapter 11 POR for the WPC Group was consummated on August 1, 2003. Among other
things, as a result of the consummation of the POR, each member of the WPC Group
is no longer a subsidiary of WHX Corporation.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the last-in first-out ("LIFO") method for precious metal inventories.
Non-precious metal inventory is evaluated for estimated excess and obsolescence
based upon assumptions about future demand and market conditions and is adjusted
accordingly. If actual market conditions are less favorable than those projected
by the Company, write-downs may be required.
GOODWILL
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 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 classified as a cumulative effect
of an accounting change. In addition, in the third quarter of 2003 the Company
recorded an $89.0 million non-cash goodwill impairment charge relating to the
following businesses: $38.5 million for specialty tubing, $47.0 million for
precious metal plating, and $3.5 million for precious metal fabrication. The
Company recorded these charges because the fair value of these reporting units,
as determined by estimated cash flow projections, was less than the reporting
units' carrying value.
The evaluation of the recoverability of the unamortized balance of goodwill
is based on a comparison of the respective reporting units' fair value to its
carrying value, including allocated goodwill. Fair values were determined by
discounting estimated future cash flows. The recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.
As a result of the adoption of SFAS 142, the Company did not record
amortization expense for existing goodwill during the year ending December 31,
2002. The Company recorded amortization expense of $7.4 million on this goodwill
for the year ended December 31, 2001.
NEW ACCOUNTING STANDARDS
In August 2001, the 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 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.
24
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 for all periods ending on or after December 15, 2003
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.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149
amends and clarifies the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS 149 is generally effective for contracts entered into
or modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. The adoption of SFAS 149 is not expected to have a material
effect on the Company's financial position, results of operations, or cash
flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
("SFAS 150"). SFAS 150 requires that certain financial instruments, which under
previous guidance were accounted for as equity, must now be accounted for as
liabilities. The financial instruments affected include mandatorily redeemable
stock, certain financial instruments that require or may require the issuer to
buy back some its shares in exchange for cash or other assets and certain
obligations that can be settled with shares of stock. SFAS 150 is effective for
all financial instruments entered into or modified after May 31, 2003 and must
be applied to the Company's existing financial instruments effective July 6,
2003, the beginning of the first fiscal period after June 15, 2003. The Company
adopted SFAS 150 on June 1, 2003. The adoption of SFAS 150 did not have any
effect on the Company's financial position, results of operations, or cash
flows.
In January 2004, the FASB issued FASB Staff Position No. FAS 106-1,
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003" (FSP 106-1). The FSP permits
employers that sponsor postretirement benefit plans (plan sponsors) that provide
prescription drug benefits to retirees to make a one-time election to defer
accounting for any effects of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (the "Act"). Without the FSP, plan sponsors would be
required under Statement of Financial Accounting Standards No. 106, EMPLOYERS'
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (FAS 106), to account
for the effects of the Act in the fiscal period that includes December 8, 2003,
the date the President signed the Act into law. The Company has elected to defer
the accounting for any effects of the Act in their fiscal 2003 financial
statements.
Proposed FASB Staff Position No. 106b (FSP 106-b) includes guidance on
recognizing the effects of the new legislation under various conditions
surrounding the assessment of "actuarial equivalence" of subsidies under the
Act. The proposed FSP 106-b, if passed would be effective for the first interim
or annual period beginning after June 15, 2004 with earlier application
permitted. The Company's accumulated plan benefit obligations and net periodic
benefit cost do not reflect any amount associated with the subsidy because the
Company is unable to conclude whether the plan's prescription drug benefit is
actuarially equivalent to Medicare "Part D" benefits under the Act.
25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
COMMODITY PRICE RISK AND RELATED RISKS
In the normal course of business, the Company is exposed to market risk or
price fluctuation related to the purchase of natural gas, electricity, precious
metals, steel products and certain non-ferrous metals used as raw material. The
Company is also exposed to the effects of price fluctuations on the value of its
commodity inventories, specifically, H&H's precious metals inventories.
The Company's market risk strategy has generally been to obtain competitive
prices for its products and services and allow operating results to reflect
market price movements dictated by supply and demand.
FOREIGN CURRENCY EXCHANGE RATE RISK
The Company is subject to the risk of price fluctuations related to
anticipated revenues and operating costs, firm commitments for capital
expenditures and existing assets or liabilities denominated in currencies other
than U.S. dollars. The Company has not generally used derivative instruments to
manage this risk.
INTEREST RATE RISK
Fair value of cash and cash equivalents, receivables, short-term
borrowings, accounts payable, accrued interest and variable-rate long-term debt
approximate their carrying values and are relatively insensitive to changes in
interest rates due to the short-term maturity of the instruments or the variable
nature of underlying interest rates.
The Company attempts to maintain a reasonable balance between fixed and
floating-rate debt in an attempt to keep financing costs as low as possible. At
December 31, 2003, the Company's portfolio of long-term debt included fixed-rate
instruments. Accordingly, the fair value of such instruments may be relatively
sensitive to effects of interest rate fluctuations. In addition, the fair value
of such instruments is also affected by investors' assessments of the risks
associated with industries in which the Company operates as well as the
Company's overall creditworthiness and ability to satisfy such obligations upon
their maturity. However, the Company's sensitivity to interest rate declines and
other market risks that might result in a corresponding increase in the fair
value of its fixed-rate debt portfolio would only have an unfavorable effect on
the Company's result of operations and cash flows to the extent that the Company
elected to repurchase or retire all or a portion of its fixed-rate debt
portfolio at an amount in excess of the corresponding carrying value.
26
SAFE HARBOR
The Company's quantitative and qualitative disclosures about market risk
include forward-looking statements with respect to management's opinion about
the risk associated with the Company's financial instruments. These statements
are based on certain assumptions with respect to market prices, interest rates
and other industry-specific risk factors. To the extent these assumptions prove
to be inaccurate, future outcomes may differ materially from those discussed
above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Stockholders of WHX Corporation
In our opinion, the accompanying Consolidated Balance Sheets and the
related Consolidated Statements of Operations, Cash Flows and of Changes in
Stockholders' Equity and Comprehensive Income present fairly, in all material
respects, the financial position of WHX Corporation and its subsidiaries (the
"Company") at December 31, 2003 and 2002, and the results of their operations
and of their cash flows for each of the three years in the period ended December
31, 2003, in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and the significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 11, the Company changed its method of accounting for
goodwill and other intangible assets in fiscal 2002.
As discussed in Notes 3 and 14, on August 1, 2003 the Plan of
Reorganization of the Company's formerly wholly-owned subsidiary,
Wheeling-Pittsburgh Corporation and Subsidiaries was consummated at which time a
number of outstanding uncertainties including pension and other post retirement
benefit obligations and environmental obligations were resolved.
PricewaterhouseCoopers LLP
New York, New York
April 13, 2004
27
WHX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
------------------------------------
2003 2002 2001
--------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE)
Net sales $ 326,296 $ 386,393 $ 388,139
Cost of goods sold 265,001 318,104 318,670
--------- --------- ---------
Gross profit 61,295 68,289 69,469
Selling, general and administrative expenses 70,063 73,652 74,304
Pension - curtailment and special termination benefits 48,102 -- --
Goodwill impairment charge 89,000 -- --
Loss on disposal of assets 6,286 2,576 18
Restructuring charges -- 19,994 --
--------- --------- ---------
Income (loss) from operations (152,156) (27,933) (4,853)
--------- --------- ---------
Other:
Interest expense 19,166 27,257 46,969
Equity in loss of WPC -- 20,000 --
Gain on disposition of WPC 534 -- --
Gain on early retirement of debt 2,999 42,491 19,011
Gain on sale of interest in Wheeling-Downs -- -- 88,517
Other income (expense) (222) (3,412) 11,130
--------- --------- ---------
Income (loss) from continuing operations before taxes (168,011) (36,111) 66,836
Tax provision (benefit) 1,197 (24,115) (28,869)
--------- --------- ---------
Income (loss) from continuing operations (169,208) (11,996) 95,705
--------- --------- ---------
Discontinued operations:
Income from discontinued operations - net of tax -- 10,601 5,416
Gain on sale - net of tax -- 11,861 --
--------- --------- ---------
-- 22,462 5,416
--------- --------- ---------
Income (loss) before cumulative effect of
accounting change (169,208) 10,466 101,121
Cumulative effect of accounting change -- (44,000) --
--------- --------- ---------
Net income (loss) (169,208) (33,534) 101,121
Dividend requirement for preferred stock 19,424 19,224 19,329
--------- --------- ---------
Net income (loss) applicable to common stock $(188,632) $ (52,758) $ 81,792
========= ========= =========
BASIC PER SHARE OF COMMON STOCK
Income (loss) from continuing operations
net of preferred dividends $ (35.08) $ (5.86) $ 15.27
Discontinued operations -- 4.22 1.08
Cumulative effect of accounting change -- (8.26) --
--------- --------- ---------
Net income (loss) per share applicable to common shares $ (35.08) $ (9.90) $ 16.35
========= ========= =========
DILUTED PER SHARE OF COMMON STOCK
Income (loss) from continuing operations $ (35.08) $ (5.86) $ 9.11
Discontinued operations -- 4.22 0.51
Cumulative effect of accounting change -- (8.26) --
--------- --------- ---------
Net income (loss) per share applicable to common shares $ (35.08) $ (9.90) $ 9.62
========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28
WHX CORPORATION
CONSOLIDATED BALANCE SHEETS DECEMBER 31,
----------------------
2003 2002
--------- ---------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 41,990 $ 18,396
Short term investments -- 205,275
Trade receivables, less allowance for doubtful accounts
of $1,003 and $2,307 42,054 43,540
Inventories 41,782 68,921
Other current assets 30,174 15,412
--------- ---------
Total current assets 156,000 351,544
Advances to WPC -- 7,458
Note receivable - WPC -- 31,959
Property, plant and equipment, at cost less
accumulated depreciation and amortization 104,223 107,590
Goodwill and other intangibles 126,089 215,426
Intangible pension asset 758 40,270
Assets held for sale 2,000 11,751
Prepaid pension asset -- 26,385
Deferred taxes - non-current -- 24,315
Other non-current assets 17,076 17,690
--------- ---------
$ 406,146 $ 834,388
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 27,300 $ 60,172
Accrued liabilities 22,083 20,924
Current portion of long-term debt 40,056 --
Short-term debt -- 107,857
Restructuring -- 5,424
Deferred income taxes - current -- 6,432
Interest payable 2,085 2,514
Payroll and employee benefits 5,227 2,776
--------- ---------
Total current liabilities 96,751 206,099
Long-term debt 189,344 249,706
Accrued pension liability 27,367 --
Other employee benefit liabilities 7,840 8,784
Loss in excess of investment in WPC -- 60,667
Additional minimum pension liability 24,912 93,728
Other liabilities 1,047 1,543
--------- ---------
347,261 620,527
--------- ---------
Commitments and contingencies
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: 5,486 and 5,406 shares 55 54
Accumulated other comprehensive income (loss) (21,642) (35,775)
Additional paid-in capital 556,206 556,009
Unearned compensation - restricted stock awards (99) --
Accumulated deficit (476,187) (306,979)
--------- ---------
58,885 213,861
--------- ---------
$ 406,146 $ 834,388
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
29
WHX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
-----------------------------------
2003 2002 2001
--------- --------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(169,208) $ (33,534) $ 101,121
Less: Income from discontinued operations -- 10,601 5,416
--------- --------- ---------
Income (loss) from continuing operations and
cumulative effect of an accounting change (169,208) (44,135) 95,705
Items not affecting cash from operating activities:
Cumulative effect of an accounting change -- 44,000 --
Goodwill impairment charge 89,000 -- --
Restructuring charge -- 5,424 --
Depreciation and amortization 16,116 22,865 27,861
Other postretirement benefits 413 200 108
Gain on early retirement of debt (2,999) (42,491) (19,011)
Gain on sale of discontinued operations -- (18,747) --
Deferred income taxes (827) (10,822) (25,428)
Loss on asset dispositions 6,286 2,576 18
Gain on sale of interest in Wheeling Downs -- -- (88,517)
Pension expense 53,215 7,736 4,461
Gain on disposition of WPC (534) -- --
Equity loss (income) in affiliated companies (38) 20,045 (2,016)
Other 99 -- --
Decrease (increase) in working capital elements,
net of effect of acquisitions:
Trade receivables 1,236 2,185 18,552
Inventories 27,139 16,358 33,747
Short term investments-trading 205,275 39,608 (175,564)
Investment account borrowings (107,857) (3,089) 110,946
Other current assets 331 (1,623) (72)
Other current liabilities (38,443) 29,883 (10,334)
Other items-net (3,407) (4,666) 6,580
--------- --------- ---------
Net cash provided by (used in) operating activities 75,797 65,307 (22,964)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds on sale of discontinued operations -- 84,869 --
Release of restricted cash (DIP) -- -- 33,000
Note receivable - WPC -- -- (30,453)
Receipts from/(advances to WPC) -- 1,250 (8,369)
Acquisitions -- (3,057) --
Settlement Agreement - WPC -- -- (32,000)
Net payments to WPC (19,500) -- --
Purchase of aircraft for resale (19,255) -- --
Plant additions and improvements (13,087) (9,335) (11,924)
Proceeds from sale of interest in Wheeling Downs -- -- 105,000
Proceeds from sales of assets 12,958 8,630 5
--------- --------- ---------
Net cash provided by (used in) investing activities (38,884) 82,357 55,259
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt retirements - net (2,622) (48,193) (61,279)
Long-term debt proceeds -- -- 48,381
Cash paid on early extinguishment of debt (14,302) (87,612) (15,906)
Due from Unimast 3,204 -- --
--------- --------- ---------
Net cash used in financing activities (13,720) (135,805) (28,804)
--------- --------- ---------
NET CASH PROVIDED BY CONTINUING OPERATIONS 23,193 11,859 3,491
NET CASH (USED IN) / PROVIDED BY DISCONTINUED OPERATIONS -- (1,358) (400)
EFFECT OF EXCHANGE RATE CHANGES ON NET CASH 401 106 (50)
Cash and cash equivalents at beginning of year 18,396 7,789 4,748
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 41,990 $ 18,396 $ 7,789
========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30
WHX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31
2003 2002 2001
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------
(DOLLARS AND SHARES IN THOUSANDS)
COMMON STOCK
Balance at beginning of year 5,406 $ 54 5,357 $ 54 4,864 $ 49
401(k) contribution -- -- -- -- 89 1
Deferred Compensation 80 1 -- -- -- --
Conversion of preferred shares -- -- 49 -- 324 3
EIP shares -- -- -- -- 80 1
--------------------------------------------------------------------
Balance at end of year 5,486 55 5,406 54 5,357 54
--------------------------------------------------------------------
PREFERRED STOCK
Balance at beginning of year 5,523 552 5,571 557 5,883 589
Conversion to common shares -- -- (48) (5) (312) (32)
--------------------------------------------------------------------
Balance at end of year 5,523 552 5,523 552 5,571 557
--------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
Balance at beginning of year (35,775) (2,268) (1,501)
Current period change 14,133 (33,507) (767)
--------- --------- ---------
Balance at end of year (21,642) (35,775) (2,268)
--------- --------- ---------
ACCUMUMLATED DEFICIT
Balance at beginning of year (306,979) (273,445) (374,566)
Net income (loss) (169,208) (33,534) 101,121
--------- --------- ---------
Balance at end of year (476,187) (306,979) (273,445)
--------- --------- ---------
UNEARNED COMPENSATION
Balance at beginning of year -- -- --
Deferred Compensation (198) -- --
Compensation Expense 99 -- --
--------- --------- ---------
Balance at end of year (99) -- --
--------- --------- ---------
CAPITAL IN EXCESS OF PAR VALUE
Balance at beginning of year 556,009 556,006 555,576
Deferred Compensation 197 -- --
401(k) contribution -- -- 401
Preferred stock conversion -- 3 29
--------- --------- ---------
Balance at end of year 556,206 556,009 556,006
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY $ 58,885 $ 213,861 $ 280,904
========= ========= =========
NET INCOME (LOSS) $(169,208) $ (33,534) $ 101,121
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment 2,239 1,241 (767)
Write off deferred foreign currency translation losses 1,142 -- --
Minimum pension liability adjustment - net of tax 10,752 (34,748) --
--------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $(155,075) $ (67,041) $ 100,354
========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of all
subsidiary companies. Wheeling-Pittsburgh Corporation ("WPC") and its
subsidiaries, which had been subsidiaries of the Company, ceased to be
subsidiaries on August 1, 2003. On November 16, 2000, 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 ("Bankruptcy
Filing") (see Note 3). As a result of the Bankruptcy Filing, the Company , as of
November 16, 2000, deconsolidated the balance sheet of its wholly owned
subsidiary WPC. Accordingly, the accompanying consolidated balance sheets at
December 31, 2003 and 2002 do not include any of the assets or liabilities of
WPC, and the accompanying consolidated statements of operations and the
consolidated statements of cash flows exclude WPC. As discussed in Note 3, a
Chapter 11 Plan of Reorganization (the "POR") for the WPC Group was consummated
on August 1, 2003. Among other things, as a result of the consummation of the
POR, each member of the WPC Group is no longer a subsidiary of WHX Corporation.
WHX is a holding company that has been structured to invest in and/or
acquire a diverse group of businesses that are managed on a decentralized basis.
WHX's primary business is H&H, a diversified manufacturing company whose
strategic business units encompass three segments: precious metal, wire &
tubing, and engineered materials. 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 was classified as a discontinued operation for the 2002 and
2001 periods. The transaction closed on July 31, 2002. WHX's other business (up
through August 1, 2003) consisted of WPC and six of its subsidiaries, including
WPSC; a vertically integrated manufacturer of value-added and flat rolled steel
products. 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."
OPERATING STATUS
The WHX 10 1/2% Senior Notes in the amount of $92.8 million are due on
April 15, 2005. It is the Company's intention to refinance this obligation prior
to its scheduled maturity; however there can be no assurance that such
refinancing will be obtained. The Company's access to capital markets in the
future to refinance such indebtedness may be limited. If the Company were unable
to refinance this obligation, it would have a material adverse impact on the
liquidity, financial position and capital resources of WHX and would impact the
Company's ability to continue as a going concern. The financial statements do
not reflect any adjustments related to this matter.
The new H&H financing agreements (see Note 12) restrict cash payments to
WHX. The ability of WHX to liquidate liabilities arising in the ordinary course
of business through December 31, 2004 contemplates the sale of assets held at
the parent company level, which management intends to do as necessary.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and on deposit and highly
liquid debt instruments with original maturities of three months or less.
REVENUE RECOGNITION
Revenue is recognized on the sale of product when the related goods have
been shipped and title and risk of loss has passed to the customer.
32
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the last-in first-out ("LIFO") method for precious metal inventories.
Non-precious metals inventories are stated at the lower of cost (principally
average) or market. For precious metals inventories, no segregation among raw
materials, work in process and finished goods is practicable.
PROPERTY, PLANT AND EQUIPMENT
Depreciation of property, plant and equipment is provided principally on
the straight-line method over the estimated useful lives of the assets, which
range as follows: machinery & equipment 3 - 20 years and buildings and
improvements 10 - 50 years. Interest cost is capitalized for qualifying assets
during the assets' acquisition period. Capitalized interest cost is amortized
over the life of the asset. Maintenance and repairs are charged to income and
renewals and betterments are capitalized. Profit or loss on dispositions is
credited or charged to operating income.
GOODWILL AND INTANGIBLES
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," effective
January 1, 2002, as discussed in Note 2 to the Consolidated Financial
Statements. As a result, goodwill is no longer amortized, but instead is
reviewed annually for impairment in accordance with the provisions of the
Statement. The evaluation of the recoverability of the unamortized balance of
goodwill is based on a comparison of the respective reporting unit's fair value
to its carrying value, including allocated goodwill. Fair values are determined
by discounting estimated future cash flows. The recoverability of goodwill will
be impacted if estimated future operating cash flows are not achieved. Purchased
patents are stated at cost, which is amortized over the respective remaining
lives of the patents.
STOCK-BASED COMPENSATION
At December 31, 2003 the Company had six stock-based compensation plans,
which are more fully described in Note 13. The Company accounts for these plans
under the recognition and measurement principles of Accounting Principles Board
(APB) Opinion No. 25, " Accounting for Stock Issued to Employees," and related
interpretations. No stock-based compensation cost for the issuance of stock
options is reflected in net income, as all options granted under these plans had
an exercise price equal to the market value of the underlying common stock on
the date of the option grant.
In 2003 the Company awarded 80,000 shares of restricted common stock to
members of the Board of Directors at a fair market value of $2.48 per share.
These shares vested 1/3 immediately and 1/3 each year thereafter over a two-year
period and are recorded as a separate component of Stockholders Equity.
Compensation expense related to restricted stock awards is recognized over the
vesting period.
The following table illustrates the effect on net income and earnings per
share if WHX had applied the fair-value recognition provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123"), to stock-based employee compensation.
33
(IN THOUSANDS - EXCEPT PER SHARE DATA)
2003 2002 2001
----------- ---------- ---------
Net income (loss), as reported
applicable to common shareholders $ (188,632) $ (52,758) $ 81,792
Add: Compensation Expense 99
Deduct: total stock-based employee
compensation expense determined
under fair-value based method
for all awards 710 470 1,529
----------- ---------- ---------
Pro forma net income (loss) $ (189,243) $ (53,228) $ 80,263
=========== ========== =========
Income (loss) per share:
Basic - as reported $ (35.08) $ (9.90) $ 16.35
Basic - pro forma (35.19) (9.99) 16.03
Diluted - as reported (35.08) (9.90) 9.62
Diluted - pro forma (35.19) (9.99) 9.47
The pro-forma amounts and the fair value of each option grant are estimated
on the date of grant using the Black-Scholes option-pricing model. The following
weighted-average assumptions were used in the Black-Scholes calculation:
expected volatility of 98.6% in 2003, 80.4% in 2002, and 69.7% in 2001;
risk-free interest rate of 2.4% in 2003, 3.1% in 2002, and 4.8% in 2001, an
expected life of 5 years and a dividend yield of zero.
ENVIRONMENTAL MATTERS
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remedial feasibility study.
Such accruals are adjusted as further information develops or circumstances
change. Costs of future expenditures for environmental remediation obligations
are not discounted to their present value. Recoveries of environmental
remediation costs from other parties are recorded as assets when their receipt
is deemed probable.
EARNINGS PER SHARE
Pursuant to SFAS 128, "Earnings per Share," basic earnings per share is
based on the weighted average number of shares of Common Stock outstanding
during each year, excluding redeemable common shares. Diluted earnings per share
gives effect to dilutive potential common shares outstanding during the period.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries have been translated at
current exchange rates, and related revenues and expenses have been translated
at average rates of exchange in effect during the year. Resulting cumulative
translation adjustments have been recorded as a separate component of
accumulated other comprehensive income.
RECLASSIFICATION
Certain amounts for prior years have been reclassified to conform to the
current year presentation.
34
NOTE 2 -RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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 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 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. In December
2003, the FASB issued a revised Interpretation, FIN 46R, which addresses a
partial deferral of and certain proposed modifications to FIN 46, to address
certain implementation issues. The adoption of FIN 46R did not have a material
impact on the Company's financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149
amends and clarifies the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS 149 is generally effective for contracts entered into
or modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. The adoption of SFAS 149 did not have a material effect on the
Company's financial position, results of operations, or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
("SFAS 150"). SFAS 150 requires that certain financial instruments, which under
previous guidance were accounted for as equity, must now be accounted for as
liabilities. The financial instruments affected include mandatorily redeemable
stock, certain financial instruments that require or may require the issuer to
buy back some its shares in exchange for cash or other assets and certain
obligations that can be settled with shares of stock. SFAS 150 is effective for
all financial instruments entered into or modified after May 31, 2003 and must
be applied to our existing financial instruments effective July 6, 2003, the
beginning of the first fiscal period after June 15, 2003. The Company adopted
SFAS 150 on June 1, 2003. The adoption of SFAS 150 did not have any effect on
the Company's financial position, results of operations, or cash flows.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits, an amendment of
FASB Statements No. 87,88, and 106, and a revision of FASB Statement No. 132"
("SFAS 132 (revised 2003)"). This statement revises employers' disclosures about
pension plans and other postretirement benefit plans. SFAS 132 is effective for
fiscal years ending after December 15, 2003 and the Company has adopted the
applicable disclosures during fiscal year 2003.
In January 2004, the FASB issued FASB Staff Position No. FAS 106-1,
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003" (FSP 106-1). The FSP permits
employers that sponsor postretirement benefit plans (plan sponsors) that provide
prescription drug benefits to retirees to make a one-time election to defer
accounting for any effects of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (the "Act"). Without the FSP, plan sponsors would be
required under Statement of Financial Accounting Standards No. 106, Employers'
Accounting for POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (FAS 106), to account
for the effects of the Act in the fiscal period that includes December 8, 2003,
the date the President signed the Act into law. The Company has elected to defer
the accounting for any effects of the Act in their fiscal 2003 financial
statements.
35
Proposed FASB Staff Position No. 106b (FSP 106-b) includes guidance on
recognizing the effects of the new legislation under various conditions
surrounding the assessment of "actuarial equivalence" of subsidies under the
Act. The proposed FSP 106-b, if passed would be effective for the first interim
or annual period beginning after June 15, 2004 with earlier application
permitted. The Company's accumulated plan benefit obligations and net periodic
benefit cost do not reflect any amount associated with the subsidy because the
Company is unable to conclude whether the plan's prescription drug benefit is
actuarially equivalent to Medicare "Part D" benefits under the Act.
NOTE 3 - WPC GROUP BANKRUPTCY
A Chapter 11 Plan of Reorganization was confirmed by the Bankruptcy Court
on June 18, 2003 and was consummated on August 1, 2003. Pursuant to the terms of
the POR, among other things, the WPC Group ceased to be a subsidiary of WHX
effective August 1, 2003, and from that date forward has been an independent
company. See below for a chronological description of the Bankruptcy Filing and
the POR.
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 enabled the WPC Group to continue business operations as
debtors-in-possession.
On November 17, 2000, the Bankruptcy Court granted the WPC Group's motion
to approve a $290.0 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 (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 $35.0 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 $255.0 million. On January 2, 2002, the WPC
Group requested and received a reduction in the revolving loans, swing loans and
letter of credit accommodations to a maximum aggregate amount of up to $175.0
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
accommodations to a maximum aggregate of $160.0 million and to make certain
other related changes to the agreement. In connection with the Bankruptcy
Filing, WHX had guaranteed $30.0 million of the term loan portion of the DIP
Credit Agreement ("Term Loan") and deposited in a pledged asset account $33.0
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 $30.0 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 $30.0 million of the Term Loan described above
was terminated and the $33.0 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. The DIP Credit Agreement was terminated and repaid
upon the consummation of the POR (see below). As discussed below, the WHX
participation interest was forgiven by WHX in connection with the consummation
of the POR.
WPC borrowings outstanding under the DIP Credit Agreement for revolving
loans totaled $137.2 million and $135.5 million at July 31, 2003 and December
31, 2002 respectively. Term Loans under the DIP Credit Agreement totaled $35.7
million and $35.2 million at July 31, 2003 and December 31, 2002 respectively.
Letters of credit outstanding under the facility totaled $2.8 million at July
31, 2003. At July 31, 2003, net availability under the DIP Credit Agreement was
$2.4 million. As a result of the consummation of the POR the DIP Credit
Agreement was repaid (except for the WHX participation described below).
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 owned a
$32.0 million participation interest in the Term Loan discussed above and held
other claims against WPC and WPSC totaling approximately $7.1 million, all of
which were forgiven in connection with the consummation of the POR. 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 July 31, 2003, the WPC Group
incurred cumulative net losses of $348.6 million. Pursuant to the terms to the
POR, WHX agreed to contribute $20.0 million to the WPC Group (see discussion
below pertaining to WHX Contributions). As a result of the Company's obligation
to fund $20.0 million to WPC Group, the Company recorded a $20.0 million charge
as Equity in loss of WPC as of December 31, 2002. All conditions to the WHX
Contributions were satisfied effective upon consummation of the POR, and on
August 1, 2003, the WHX Contributions were made.
36
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 $32.0 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
Canfield Metal Coatings Corporation ("CMCC") (formerly known as
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 CMCC.); (4) the termination of the Tax
Sharing Agreements between WHX and WPC; (5) WHX's delivery of 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 (the "WHX 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 CMCC, all occurred effective May 29, 2001. The acquisition of certain
assets of CMCC closed on June 29, 2001. The CMCC 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 WPSC (1) up to $5.0
million of loans and $5.0 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 $2.0 million of loans (for an
aggregate of $7.0 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 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 was superceded by the WHX
Contributions described below). Through July 31, 2003, WHX had advanced $5.0
million of the loans and up to $5.5 million of financing. At July 31, 2003, the
outstanding balance of these advances was $5.0 million plus interest of $0.5
million, and $1.6 million, respectively. These advances, totaling $7.1 million,
were forgiven in connection with the consummation of the POR.
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 were granted super-priority claim status in WPSC's
Chapter 11 case and are collateralized 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 provided, among other things, that the Company could sell,
transfer or dispose of the stock of WPC free from the automatic stay imposed
under the Bankruptcy Code, and under specified circumstances, required WPC to
support certain changes to the WHX Plan. Additionally, the October Order
approved the terms of the Modified Labor Agreement ("MLA") by and among WPC,
WPSC and the USWA. WHX was not a party to the MLA. The MLA modified the then
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 was part of a comprehensive support arrangement that also involved
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 that 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.
37
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 $250.0 million federal loan guarantee. An affiliate of RBC
agreed to underwrite the loan if the guaranty was 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 was subject to the satisfaction of various
conditions on or before June 30, 2003, subsequently extended to August 15, 2003,
including, without limitation, resolution of the treatment of the WHX Pension
Plan that was 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. All such conditions were satisfied on or before August
1, 2003.
The amended RBC application contained a business plan that assumed a
confirmed Chapter 11 plan of reorganization for the WPC Group. As part of the
POR, the Company had conditionally agreed to make certain contributions (the
"WHX Contributions") to the reorganized company. Under the WHX Contributions,
the Company forgave the repayment of its claims against the WPC Group of
approximately $39.0 million and, additionally, contributed to the reorganized
company $20.0 million of cash, for which the Company received a note in the
amount of $10 million. The note was fully reserved upon receipt. (Such reserve
is continually evaluated and adjustments would be made to the reserve in the
event circumstances warrant.) The loan with the RBC closed on August 1, 2003 and
all conditions to the guaranty by the ESLGB were satisfied and the guaranty was
granted. The proceeds of the RBC Loan, among other things, were used to repay
the DIP creditors (except for WHX). In addition all conditions to the WHX
Contributions were satisfied and the WHX Contributions were made.
On June 18, 2003 the POR was confirmed by the Bankruptcy Court and on
August 1, 2003 it was consummated. In connection with the consummation of the
POR Effective on August 1, 2003 the WPC Group ceased to be a subsidiary of WHX
and from that date forward has been an independent company.
On March 6, 2003, the 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 Plan. WHX filed an answer to this complaint
on March 27, 2003, contesting the PBGC's action. On July 24, 2003, the Company
entered into an agreement among the PBGC , Wheeling-Pittsburgh Corporation
("WPC"), Wheeling-Pittsburgh Steel Corporation ("WPSC"), and the United
Steelworkers of America, AFL-CIO-CLC ("USWA") in settlement of matters relating
to the PBGC v. WHX CORPORATION, Civil Action No. 03-CV-1553, in the United
States District Court for the Southern District of New York ("Termination
Litigation"), in which the PBGC was seeking to terminate the WHX Plan. Under the
settlement, among other things, WHX agreed (a) that the WHX Plan, as it is
currently constituted, is a single employer pension plan, (b) to contribute
funds to the WHX Plan equal to moneys spent (if any) by WHX or its affiliates to
purchase WHX 10.5% Senior Notes ("Senior Notes") in future open market
transactions, and (c) to grant to the PBGC a pari passu security interest of up
to $50.0 million in the event WHX obtains any future financing on a secured
basis or provides any security or collateral for the Senior Notes.
Also under the settlement, all parties agreed that as of the effective date
of the POR, (a) no shutdowns had occurred at any WPC Group facility, (b) no
member of the WPC Group is a participating employer under the WHX Plan, (c)
continuous service for WPC Group employees was broken, (d) no WPC Group
employees will become entitled to "Rule of 65" or "70/80" Retirement Benefits
(collectively, "Shutdown Benefits") by reason of events occurring after the
effective date of the POR, and (e) the WHX Plan would provide for a limited
early retirement option to allow up to 650 WPSC USWA-represented employees the
right to receive retirement benefits based on the employee's years of service as
of July 31, 2003 with a monthly benefit equal to $40 multiplied by the
employee's years of service.
Finally, under the settlement, the PBGC agreed (a) that, after the
effective date of the POR, if it terminates the WHX Plan at least one day prior
to a WPC Group facility shutdown, WHX shall be released from any additional
liability to PBGC resulting from the shutdown, (b) to withdraw its claims in the
WPC Bankruptcy Proceedings, and (c) to dismiss the Termination Litigation.
A pre-tax, non-cash charge for the cost of early retirement incentives of
$11.5 million was recognized in the third quarter of 2003 as a special
termination benefit in accordance with Statement of Financial Accounting
Standards No. 88, "Employers' Accounting for Settlement and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits" ("SFAS 88"). In
addition, a curtailment occurred as a result of the break in service for WPC
Group employees that resulted in a pre-tax, non-cash charge of $36.6 million in
the third quarter of 2003, pursuant to SFAS 88.
38
For WHX Plan funding purposes, the impact of the changes will not be
recognized until the next actuarial valuation which occurs as of January 1,
2004. The funding requirements will depend on many factors including those
identified above as well as future investment returns on WHX Plan assets. Based
on preliminary estimates, using the current statutory discount rate, WHX will be
required to make a contribution to the WHX Plan of approximately $6.0 million in
2004.
The agreement with the PBGC also contains the provision that WHX will not
contest a future action by the PBGC to terminate the WHX Plan in connection with
a future WPC Group facility shutdown. In the event that such a plan termination
occurs, the PBGC has agreed to release WHX from any claims relating to the
shutdown. However, there may be PBGC claims related to unfunded liabilities that
may exist as a result of a termination of the WHX Plan.
In connection with past collective bargaining agreements by and between the
WPC Group and the USWA, the WPC Group was 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 had previously and separately
agreed to be contingently liable for a portion of the OPEB Obligations. WHX's
contingent obligation would have been triggered in the event that the WPC Group
failed to satisfy its OPEB Obligations. WHX's contingent obligation was 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 was 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. As a result of the consummation of the
POR, WHX's contingent liability for the OPEB Obligation was eliminated.
As a result of the consummation of the POR and the related WHX
Contributions, the remaining balance in the loss in excess of investment account
of $0.5 million was reversed into income in the third quarter of 2003.
39
NOTE 4 - 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. In the third
quarter of 2002, the Company recognized a pre-tax gain on the sale of
approximately $18.6 million. The gain on sale is net of closing costs,
transaction fees, employee related payments, and other costs and expenses. 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 the proceeds from the sale to
reduce other corporate debt pursuant to the terms of the Indenture for the
Company's 10 1/2 % Senior Notes.
As a result of the sale, the 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:
YEAR ENDED DECEMBER 31
2002 (a) 2001
---------------------------
(in thousands)
Net sales $ 150,997 $ 232,384
Operating income 17,652 11,410
Interest/ other income (expense) (806) (2,442)
Income taxes 6,245 3,552
Net income 10,601 5,416
(a) Seven month period ended 07/31/2002.
NOTE 5 - 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 included $6.6 million in employee separation expenses (approximately 251
employees, substantially all of whom were terminated by June 30, 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. An additional $2.9 million of associated costs were incurred during
2003. Such costs are not included in the aforementioned restructuring charge.
The Company received $8.0 million in 2003 and $8.5 million in 2002 for the
sale of certain property and equipment associated with this segment. The Company
recorded a $3.9 million loss on the sale of property in 2003. The Company
retained title to a parcel of land in Fairfield, CT. This parcel is classified
as an asset held for sale, in the amount of $2.0 million, on the Consolidated
Balance Sheet at December 31, 2003.
The following table represents the activity of the restructuring reserve:
40
RESERVE RESERVE
BALANCE BALANCE
DECEMBER 31, COST DECEMBER 31,
2002 INCURRED ADJUSTMENT 2003
----------- -------- ---------- ------------
(in thousands)
Employee separation and related costs $ 1,358 $ (882) $ (476) $-
Facility closing and refining costs 1,117 (1,622) 505 --
Contractual obligations 137 (63) (74) --
----------- --------- ---------- ------------
$ 2,612 $(2,567) $ (45) $-
=========== ========= ========== ============
In September 2002, the Company decided to exit certain of its stainless
steel wire activities. The affected operations were 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 were: $2.8 million in
employee separation expenses (approximately 121 employees, all of whom were
terminated by June 30, 2003), $4.8 million for the write-down of production
supplies and consumables and facility closing costs, and $0.4 million in
contractual obligations. An additional $1.2 million of associated costs were
incurred during 2003. Such costs are not included in the aforementioned
restructuring charge. As of December 31, 2003, the Company has received $1.4
million for the sale of the Liversedge, England property and $1.3 million on the
sale of the Willingboro, NJ property. The Company may elect to make
contributions in the range of $0.1 million to $0.5 million to a foreign pension
plan.
The following table represents the activity of this restructuring reserve:
RESERVE RESERVE
BALANCE BALANCE
DECEMBER 31, COST DECEMBER 31,
2002 INCURRED ADJUSTMENT 2003
----------- -------- ---------- ------------
(in thousands)
Employee separation and related costs $ 1,197 $(1,121) $ (76) $--
Facility closing costs 1,241 (1,592) 351 --
Contractual obligations 374 (144) (230) --
----------- --------- ---------- ------------
$ 2,812 $(2,857) $ 45 $--
=========== ========= ========== ============
The adjustments made to the restructuring reserves during the year ended
December 31, 2003 represented revisions to the original cost estimates based on
actual costs incurred.
NOTE 6 - PENSIONS, OTHER POSTRETIREMENT AND POST-EMPLOYMENT BENEFITS
The Company maintains several qualified and non-qualified pension plans and
other postretirement benefit plans covering substantially all of its employees.
The Company's pension, health care benefit and significant defined contribution
plans are discussed below. The Company's other defined contribution plans are
not significant individually or in the aggregate.
PENSION PLANS
The Company's defined benefit plan, the WHX Pension Plan, covers
substantially all WHX and H&H employees and certain employees of WHX's former
subsidiary, WPC. The WHX Pension Plan was established in May 1998, as a result
of the merger of the former Handy & Harman plans, which covered substantially
all H&H employees, and the WPC plan. The WPC plan, covering most USWA
represented employees of WPC, was created pursuant to a collective bargaining
agreement ratified on August 12, 1997. Prior to that date, benefits were
provided through a defined contribution plan, the Wheeling-Pittsburgh Steel
Corporation Retirement Security Plan ("RSP"). The assets of the RSP were merged
into the WPC plan as of December 1, 1997. Under the terms of the WHX Pension
Plan, the benefit formula and provisions for the WPC and H&H participants
continued as they were designed under each of the respective plans prior to the
merger.
As discussed in Note 3, WPC Group employees ceased to be active
participants in the WHX Pension Plan effective July 31, 2003 and as a result
such employees will no longer accrue benefits under the WHX Plan. Pursuant to
the provisions of SFAS 88, this event constituted a curtailment of the WHX Plan
41
and required WHX to revalue the pension liability as of July 31, 2003
("remeasurement date"). The curtailment resulted in a pre-tax, non-cash charge
to income of $36.6 million in the third quarter of 2003.
In addition a special termination benefit was provided to 540 WPC Group
employees. In the third quarter of 2003 WHX recognized a non-cash, pre-tax
charge of $11.5 million relating to this benefit.
The July 31, 2003 valuation also resulted in a minimum liability of $11.4
million, which is $77.9 million lower than the amount recorded at December 31,
2002. As a result WHX reduced the recorded minimum liability with corresponding
credits to other comprehensive income and intangible pension asset of $38.4
million and $39.5 million, respectively as of December 31, 2003.
Pension benefits for the H&H participants included in the WHX Pension Plan
are based on years of service and the amount of compensation at the time of
retirement.
Pension benefits for the WPC participants include both defined benefit and
defined contribution features, since the plan includes the account balances from
the RSP. The gross benefit, before offsets, is calculated based on years of
service and the benefit multiplier under the plan. This gross amount is then
offset for the benefits payable from the RSP and benefits payable by the Pension
Benefit Guaranty Corporation from previously terminated plans. Individual
employee accounts established under the RSP are maintained until retirement.
Upon retirement, participants who are eligible for the WHX Pension Plan and
maintain RSP account balances will normally receive benefits from the WHX
Pension Plan. When these participants become eligible for benefits under the
Plan, their vested balances in the RSP Plan become assets of the WHX Pension
Plan. Aggregate account balances held in trust in individual employees' accounts
totaled $109.4 million at December 31, 2003. Such individual account balances
can only be utilized to fund all or a portion of the respective individual's
total pension benefit as determined by the defined benefit plan's benefit
formula. These assets cannot be utilized to fund any of the defined benefit
plan's benefit obligation at December 31, 2003.
The Company's funding policy is to contribute annually an amount that
satisfies the minimum funding standards of ERISA. Since 1998, the Company has
not been required to make any such contributions.
In addition to the WHX Pension Plan, H&H provides pension coverage for
employees of its U.K. subsidiary through a separate plan governed by U.K.
statutory requirements.
The following table presents a reconciliation of beginning and ending balances
of the projected benefit obligation.
Domestic Plan Foreign Plan
---------------------------------------------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(IN THOUSANDS)
Benefit obligation at January 1 $ 372,767 $ 314,093 $ 10,026 $ 8,323
Service cost 4,182 6,472 250 211
Interest cost 22,128 23,551 563 536
Actuarial (gain)/loss 2,227 50,051 (252) 192
Benefits paid (36,943) (26,153) (817) (203)
Plan amendments - implementation 376 239 -- --
Curtailments (28,426) -- (392) --
Special termination benefits 11,472 -- -- --
Foreign currency exchange rate changes -- -- -- 967
Transfers from DC plans 40,681 4,514 1,027 --
--------- --------- --------- ---------
Benefit obligation at December 31 $ 388,464 $ 372,767 $ 10,405 $ 10,026
========= ========= ========= =========
42
The following table presents a reconciliation of beginning and ending balances
of the fair value of plan assets.
Domestic Plan Foreign Plan
--------------------------- ---------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(IN THOUSANDS)
Fair value of plan assets at January 1 $ 304,137 $ 319,392 $ 5,386 $ 6,336
Actual returns on plan assets 31,435 6,384 645 (1,650)
Benefits paid (36,943) (26,153) (817) (203)
Employer contributions -- -- 21 315
Foreign currency exchange rate changes -- -- 572 588
Transfers from DC plans 40,681 4,514 --
--------- --------- --------- ---------
Fair value of plan assets at December 31 $ 339,310 $ 304,137 $ 5,807 $ 5,386
========= ========= ========= =========
Funded status $ (49,154) $ (68,630) $ (4,598) $ (4,640)
Unrecognized prior service cost 715 40,228 -- --
Unrecognized actuarial (gain)/loss 21,072 54,250 4,396 5,134
Unrecognized transition obligation -- -- 42 43
--------- --------- --------- ---------
Net amount recognized $ (27,367) $ 25,848 $ (160) $ 537
========= ========= ========= =========
The following table provides the amount recognized in the consolidated balance
sheets as of December 31:
Domestic Plan Foreign Plan
------------------------- -------------------------
2003 2002 2003 2002
-------- -------- -------- --------
(in thousands)
Prepaid pension asset $ -- $ 25,848 $ -- $ 537
Accrued pension liability (27,367) -- -- --
Additional minimum liability (20,314) (89,255) (4,598) (4,473)
Intangible asset 716 40,228 42 42
Accumulated other comprehensive income
- (net of tax in 2002) 19,598 31,868 4,396 2,880
Deferred tax asset -- 17,159 -- 1,551
-------- -------- -------- --------
$(27,367) $ 25,848 $ (160) $ 537
======== ======== ======== ========
43
The following table presents the components of net periodic pension cost.
Domestic Plan Foreign Plan
------------------------------------ ------------------------------------
2003 2002 2001 2003 2002 2001
------------------------------------ ------------------------------------
(IN THOUSANDS)
Service cost $ 4,182 $ 6,472 $ 6,142 $ 250 $ 211 $ 225
Interest cost 22,129 23,551 22,447 563 536 469
Expected return on plan assets (24,590) (28,346) (30,386) (383) (461) (559)
Amortization of prior service cost 3,393 5,769 6,601 -- --
Recognized actuarial (gain)/loss -- -- (343) 279 -- --
Amortization of unrecognized
transition obligation -- -- -- 4 4 4
------------------------------------ ------------------------------------
5,114 7,446 4,461 713 290 139
------------------------------------ ------------------------------------
Curtailment (gain) loss 36,629 -- -- -- -- --
Special termination benefit charge 11,472 -- -- -- -- --
------------------------------------ ------------------------------------
$ 53,215 $ 7,446 $ 4,461 $ 713 $ 290 $ 139
==================================== ====================================
The following table presents weighted-average assumptions used to determine
benefit obligations at December 31,
Domestic Plan Foreign Plan
------------------------ -------------------------
2003 2002 2001 2003 2002 2001
------------------------ -------------------------
Discount rate 6.25% 6.75% 7.25% 5.60% 5.60% 6.25%
Expected return on assets 8.50% 8.50% 9.25% 7.00% 7.00% 8.00%
Rate of compensation increase 4.00% 4.00% 4.00% 3.80% 3.40% 4.50%
The following table presents weighted-average assumptions used to determine net
periodic benefit cost for years ended December 31,
Domestic Plan Foreign Plan
-------------------------- -------------------------
2003 2002 2001 2003 2002 2001
-------------------------- -------------------------
Discount rate 6.75%(a) 7.25% 7.75% 5.60% 5.60% 6.25%
Expected return on assets 8.50% 9.25% 10.00% 7.00% 7.00% 8.00%
Rate of compensation increase 4.00% 4.00% 4.00% 3.40% 3.40% 4.50%
(a) discount rate of 6.75% applied for the period January 1 through July 31,
2003. The discount rate was changed to 6.50% for the remeasurement
effective August 1, 2003
In determining the expected long-term rate of return on assets, the Company
evaluated input from its investment consultants, investment managers and
actuaries. In addition, the Company considered its historical compound returns,
which have been in excess of the Company's forward-looking returns.
44
PLAN ASSETS
WHX's domestic pension plan weighted-average asset allocations at December
31, 2003 and 2002, by asset category, are as follows:
PLAN ASSETS
2003 2002
---- ----
ASSET CATEGORY
Equity Securities 41% 35%
Debt Securities 9% 10%
Convertible Securities 11% 11%
Cash 1% 6%
Other (Hedge Funds) 38% 38%
---- ----
Total 100% 100%
===== ====
The Company's investment policy is to maximize the total rate of return
with a view to long-term funding objectives of the pension plan to ensure that
funds are available to meet benefit obligations when due. The three to five year
objective of the Plan is to achieve a rate of return that exceeds the Company's
expected earnings rate by 150 basis points at prudent levels of risk. Therefore
the pension plan assets are diversified to the extent necessary to minimize risk
and to achieve an optimal balance between risk and return. There are no target
allocations. The Plan's assets are diversified as to type of assets, investment
strategies employed, and number of investment managers used. Investments may
include equities, fixed income, cash equivalents, convertible securities, and
hedge funds. Derivatives may be used as part of the investment strategy. The
Company may direct the transfer of assets between investment managers in order
to rebalance the portfolio in accordance with asset allocation guidelines
established by the Company.
CONTRIBUTIONS
The estimated minimum funding requirements for the domestic pension plan in
2004, 2005, 2006 and 2007 would equal $6 million, $1 million, $21 million and $3
million, respectively, based on the current funding assumptions and a Current
Liability interest rate (the rate mandated under federal minimum funding rules)
of 6%. The plan is very close to a fully funded status, which is why
contributions drop significantly in 2007 following the larger contribution in
2006. Because the plan is just below a fully funded status, funding projections
are especially sensitive to alternative Current Liability interest rate
assumptions. For example, if the Current Liability interest rate as of January
1, 2005 were 6.5% even if all other years remain at 6%, minimum contributions
would be $6 million, $13 million, $0, and $1 million for the years 2004 through
2007. A Current Liability interest rate of 6% reflects the current interest rate
environment and the April 2004 passage of new pension funding rules by Congress.
In addition to the aforementioned benefit plans, H&H has a non-qualified
pension plan for certain current and retired employees
The following table presents the amounts recognized in the consolidated
balance sheets for this plan at December 31:
2003 2002
------- -------
(IN THOUSANDS)
Projected benefit obligation $(1,101) $(1,100)
Fair value of assets -- --
------- -------
Funded status (1,101) (1,100)
Unrecognized prior service cost 232 255
Unrecognized loss 26 (111)
------- -------
Net amount recognized $ (843) $ (956)
======= =======
401(K) PLANS
Certain H&H employees participate in an H&H sponsored savings plan, which
qualifies under Section 401(k) of the Internal Revenue Code. This savings plan
allows eligible employees to contribute from 1% to 15% of their income on a
pretax basis. H&H matches 50% of the first 3% of the employee's contribution.
45
H&H's contributions are invested in shares of WHX common stock and become
immediately vested. The charge to operations for the Company's matching
contribution amounted to $413,000, $494,000 and $597,000 for 2003, 2002 and
2001, respectively.
The number of shares of the Company's common stock held by the H&H 401(k)
plan was 465,277, 353,734 and 193,261 at December 31, 2003, 2002 and 2001,
respectively.
OTHER POSTRETIREMENT BENEFITS
Certain current and retired employees of H&H are covered by postretirement
medical benefit plans. The benefits provided are for medical and prescription
drugs. Contributions from a majority of the participants are required and for
those retirees and spouses, the Company's payments are capped.
The following table presents a reconciliation of beginning and ending
balances of the Accumulated Other Postretirement Benefit Obligation ("APBO").
2003 2002
------- -------
(IN THOUSANDS)
APBO at January 1, $ 7,407 $ 7,060
Service cost 8 19
Interest cost 388 490
Actuarial (gain) loss (1,104) 83
Plan amendments -- 10
Benefits paid (1,070) (658)
Curtailments -- 403
------- -------
APBO at December 31, $ 5,629 $ 7,407
======= =======
The above H&H other post-retirement benefit plans are unfunded.
Weighted average assumptions used to determine postretirement benefit
obligations at December 31 were as follows:
2003 2002 2001
---- ---- ----
Discount rate 6.25% 6.75% 7.25%
Health care cost trend rate 10.00% 12.00% 8.00%
Weighted average assumptions used to determine net postretirement cost for the
three years ended December 31 were as follows:
2003 2002 2001
---- ---- ----
Discount rate 6.25% 6.75% 7.25%
Health care cost trend rate 10.00% 12.00% 8.00%
46
The following table presents the amounts recognized in the consolidated balance
sheets as of December 31:
2003 2002
------- -------
(IN THOUSANDS)
Funded status $(5,629) $(7,407)
Unrecognized prior service cost (credit) 9 10
Unrecognized actuarial gain (1,377) (431)
------- -------
Net amount recognized $(6,997) $(7,828)
======= =======
The following table presents the components of net periodic benefit cost:
2003 2002 2001
----- ----- -----
(IN THOUSANDS)
Service cost $ 8 $ 19 $ 26
Interest cost 388 490 530
Amortization of prior service cost 1 177 178
Amortization of net (gain) (158) (28) (39)
Curtailment loss -- 280 --
----- ----- -----
Net periodic benefit cost $ 239 $ 938 $ 695
===== ===== =====
At December 31, 2003, the health care cost trend rate was 10% decreasing to
an ultimate rate of 5% beginning in 2007. A one percentage point increase in
healthcare cost trend rates in each year would decrease the accumulated
postretirement benefit obligation as of December 31, 2003 by $15,000 and the
aggregate of the service cost and interest cost components of 2003 annual
expense by $1,000. A one percentage point decrease in healthcare cost trend
rates in each year would increase the accumulated postretirement benefit
obligation as of December 31, 2003 by $12,000 and the aggregate of the service
cost and interest cost components of 2003 annual expense by $1,000.
During 2003, the President of the United States signed into law the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the
"Act"). In accordance with FASB Staff Position FSP 106-1, the Company has
elected to defer the accounting for any effects of the Act in their fiscal 2003
financial statements. As a result any measures of the accumulated postretirement
benefit obligation (APBO) or net periodic postretirement benefit cost in the
financial statements or accompanying notes do not reflect the effects of the Act
on the Company's plan. Specific authoritative guidance on the accounting for the
federal subsidy for prescription drug benefits is currently pending and this
guidance, when issued, could require the Company to change previously reported
information regarding the accounting for prescription drug benefits included in
the Company's postretirement medical benefit plan
47
NOTE 7 - INCOME TAXES
YEAR ENDED DECEMBER 31,
2003 2002 2001
-------- -------- --------
(IN THOUSANDS)
INCOME TAXES FROM CONTINUING OPERATIONS
Current
Federal tax provision $ -- $ -- $ --
State tax provision 1,145 1,510 490
Foreign tax provision 303 376 771
-------- -------- --------
Total income taxes current 1,448 1,886 1,261
-------- -------- --------
Deferred
Federal tax provision (benefit) (26,001) (30,130)
State tax provision (benefit) (251) -- --
-------- -------- --------
Income tax provision (benefit) $ 1,197 $(24,115) $(28,869)
======== ======== ========
TOTAL INCOME TAXES
Current
Federal tax provision $ -- $ -- $ --
State tax provision 1,145 2,359 885
Foreign tax provision 303 376 771
-------- -------- --------
1,448 2,735 1,656
-------- -------- --------
Deferred
Federal tax provision (benefit) -- (13,719) (26,973)
State tax provision (benefit) (251) -- --
-------- -------- --------
Income tax provision (benefit) $ 1,197 $(10,984) $(25,317)
======== ======== ========
COMPONENTS OF TOTAL INCOME TAXES
Continuing operations $ 1,197 $(24,115) $(28,869)
Discontinued operations -- 13,131 3,552
-------- -------- --------
Income tax provision (benefit) $ 1,197 $(10,984) $(25,317)
======== ======== ========
48
Deferred income taxes result from temporary differences in the financial
basis and tax basis of assets and liabilities. The amounts shown on the
following table represent the total differences between the Company's
consolidated tax return basis of assets and liabilities and the basis for
financial reporting.
DEFERRED INCOME TAX SOURCES
2003 2002
----- -----
(IN MILLIONS)
ASSETS
Postretirement and postemployment employee benefits $ 2.9 $ 2.7
Operating loss carryforwards 37.5 28.9
Minimum tax credit carryforwards (indefinite carryforward) 0.8 0.8
Additional minimum pension liability -- 18.7
Pension 9.6 --
Miscellaneous other -- 1.5
----- -----
Deferred Tax Assets $50.8 $52.6
===== =====
LIABILITIES
Property plant and equipment $(7.7) $(12.3)
Inventory (0.1) (6.4)
Pension -- (9.1)
State income taxes (1.4) (1.5)
Miscellaneous other (1.0) --
----- -----
Deferred Tax Liability (10.2) (29.3)
----- -----
Valuation Allowance (40.6) (5.4)
----- -----
NET DEFERRED INCOME TAX ASSET (LIABILITY) $-- $17.9
===== =====
Net deferred tax assets amounting to $40.6 million have been fully
reserved. Included in deferred tax assets are pre-tax federal NOL's of $90.6
million and pre-tax foreign NOL's of $16.0 million. These NOL's expire between
2005 & 2023. In fiscal year 2003 WHX reserved the net deferred tax asset since
in the opinion of management, it is more likely than not such tax benefits will
not be realized in future periods. Management performs a periodic evaluation of
deferred tax assets and will adjust valuation reserves as circumstances warrant.
In the third quarter of 2003 WHX reduced its minimum pension liability with
corresponding credits to other comprehensive income and intangible pension
asset. The deferred tax asset of $13.4 million associated with this adjustment
was charged to other comprehensive income. In addition, the remaining balance of
the deferred tax asset relating to the third quarter minimum pension liability
of $5.3 million was reversed to other comprehensive income thus eliminating the
tax benefit that had previously been recognized in other comprehensive income in
fiscal year 2002.
The WPC Group was included in the consolidated federal income tax return of
WHX through August 1, 2003, after which the WPC Group will file separate federal
income tax returns. The Company has recognized a deferred tax asset for the
NOL's that will remain with the WHX federal tax consolidated group. Pre-tax
Federal NOL's remaining with WHX amount to $90.6 million. This Deferred tax
asset is fully reserved as discussed above.
As a result of the Settlement Agreement (See Note 3 to the Consolidated
Financial Statements) with the WPC Group and the related termination of the Tax
Sharing Agreement, the Company recognized a benefit from net operating losses of
$13.6 million at December 31, 2001, which was previously fully reserved. In
2002, the Company recognized a tax benefit of $4.5 million from net operating
loss carryforwards of the WPC Group of $12.9 million. Net operating loss
carryforwards of the WPC Group amounting to $410.0 million are not reflected in
the above table as of December 31, 2002. Alternative Minimum Tax credits of the
WPC Group amounting to $14.5 million are not reflected in the above table as of
December 31, 2002.
Deferred income taxes have not been provided on the undistributed earnings
of foreign subsidiaries and other foreign investments accounted for under the
equity method. These earnings have been substantially reinvested, and the
Company does not plan to initiate any action that would precipitate the payment
of income taxes thereon.
During 1994, the Company experienced an ownership change as defined by
Section 382 of the Internal Revenue Code. As the result of this event,
pre-change of control net operating losses that can be used to offset
post-change of control pre-tax income will be limited to approximately $32.0
million in any year. Post-change of control net operating losses do not have an
annual offset limitation.
49
Total federal and state income taxes paid in 2003, 2002 and 2001 by
continuing operations were $0.4 million, $0.2 million, and $1.4 million,
respectively.
For federal income tax purposes, the statute of limitations for audit by
the Internal Revenue Service ("IRS") is open for years 2000 through 2003.
Management believes it has adequately provided for all taxes on income.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pretax income as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------
2003 2002 2001
---------------------------------------
(IN THOUSANDS)
Income (loss) before taxes and extraordinary item $(168,011) $ (36,111) $ 66,836
========= ========= =========
Tax provision (benefit) at statutory rate $ (58,804) $ (12,639) $ 23,393
Increase (decrease) in tax due to:
Equity earnings (34) (34) (89)
Equity in loss of WPC -- 7,000
Goodwill impairment charge 31,150 -- --
Goodwill amortization -- -- 2,289
Other permanent differences (140) (127) 1,339
State income tax net of federal effect 795 1,510 172
Change in valuation allowance 35,163 3,000 500
Net effect of foreign tax rate 141 456 101
Benefit of current year losses of
non-consolidated subsidiary (WPC) (7,095) (16,662) (44,388)
Benefit of net operating loss carryforwards of
non-consolidated subsidiary (WPC) -- (4,520) --
Recognition of AMT credit -- (1,655) --
Recognition of NOLs available due to
termination of WPC Tax Sharing Agreement -- -- (13,642)
Other 21 (444) 1,456
--------- --------- ---------
Tax provision (benefit) $ 1,197 $ (24,115) $ (28,869)
========= ========= =========
NOTE 8 - SHORT TERM INVESTMENTS AND OTHER CURRENT ASSETS
The composition of the Company's short-term investments are as follows:
YEAR ENDED DECEMBER 31,
----------------------
2003 2002
-------- --------
(IN THOUSANDS)
Trading Securities:
U. S. Treasury Securities $ -- $200,625
Equities -- 4,650
-------- --------
$ -- $205,275
======== ========
Net unrealized holding gains and losses on trading securities held at
period end and included in other income for 2002 was a loss of $4.9 million.
During the year ended December 31, 2002, the Company used short-term margin
borrowings in connection with its short-term investing activities. At December
31, 2002 WHX had short-term borrowings of $107.9 million in support of its
short-term investments.
In the first quarter of 2003 the Company purchased an aircraft for $19.3
million, which it sold in the first quarter of 2004 for $19.3 million. The
aircraft is included in other current assets on the Company's consolidated
balance sheet at December 31, 2003.
50
NOTE 9 - INVENTORIES
YEAR ENDED DECEMBER 31,
----------------------
2003 2002
-------- --------
(IN THOUSANDS)
Finished products $ 14,938 $ 13,067
In-process 7,992 11,291
Raw materials 17,290 19,925
Fine and fabricated precious metal in various stages of completion 1,575 25,322
-------- --------
41,795 69,605
LIFO reserve (13) (684)
-------- --------
$ 41,782 $ 68,921
======== ========
During 2003, 2002 and 2001, certain inventory quantities were
reduced, resulting in liquidations of LIFO inventories, the effect of which
increased (decreased) pre-tax income by approximately, $3.2 million, $0.2
million, and $(0.4) million in 2003, 2002 and 2001, respectively. The operating
income for 2003 and 2001 includes a non-cash charge to cost of sales resulting
from the lower of cost or market adjustment to precious metal inventories in the
amount of $1.3 million and $3.3 million, respectively.
Certain customers and suppliers of the H&H Precious Metal Segment
choose to do business on a "pool" basis. Such customers and suppliers furnish
precious metal to H&H for return in fabricated form (customer metal) or for
purchase from or return to the supplier. When the customer's precious metal is
returned in fabricated form, the customer is charged a fabrication charge. The
value of consigned precious metal is not included in the Company's balance
sheet. To the extent that the quantity of customer and supplier precious metal,
as well as precious metal owned by the Company, does not meet operating needs,
the Company can lease precious metal . At December 31, 2003, 1,605,000 ounces of
silver and 14,617 ounces of gold were leased to the Company under a Consignment
Facility. The weighted-average consignment rates under the Consignment Facility
for gold were 4.75% and 2.0% at December 31, 2003 and 2002, respectively, and
for silver were 4.58% and 2.1% per annum at December 31, 2003 and 2002,
respectively, based on the market value of the related leased precious metal.
This consignment facility was terminated on March 30, 2004 and H&H purchased
approximately $15.0 million of precious metal.
51
The following table summarizes customer and leased precious metal quantities:
YEAR ENDED DECEMBER 31
------------------------------
2003 2002
--------- ---------
Silver ounces:
Customer metal 136,000 191,000
Leased 1,605,000 4,675,000
--------- ---------
Total 1,741,000 4,866,000
========= =========
Gold ounces:
Customer metal 2,793 4,240
Leased 14,617 6,200
--------- ---------
Total 17,410 10,440
========= =========
Palladium ounces:
Customer metal 936 1,171
========= =========
Supplemental inventory information:
YEAR ENDED DECEMBER 31
-----------------------------
2003 2002
------------ -----------
(IN THOUSANDS, EXCEPT PER OUNCE)
Precious metals stated at LIFO cost $ 1,562 $ 24,638
Market value per ounce:
Silver $ 5.960 $ 4.790
Gold $ 416.70 $ 344.80
Palladium $ 193.00 $ 239.00
Note 10 - Property, Plant and Equipment
YEAR ENDED DECEMBER 31
-----------------------
2003 2002
-------- --------
(IN THOUSANDS)
Land $ 8,512 $ 9,185
Buildings, machinery and equipment 133,157 126,937
Construction in progress 4,790 5,256
-------- --------
146,459 141,378
Accumulated depreciation and amortization 42,236 33,788
-------- --------
$104,223 $107,590
======== ========
Depreciation expense for continuing operations for the years 2003, 2002 and
2001 was $14.1 million, $20.1 million, and $16.3 million, respectively. Included
in depreciation expense for 2002 is $3.4 million in accelerated depreciation on
equipment values related to the exit of certain stainless steel wire activities.
(See Note 5 to the consolidated financial statements).
NOTE 11 - GOODWILL AND OTHER INTANGIBLES
In July 2001, the FASB issued SFAS 141 and 142, "Business Combinations"
("SFAS 141") and "Goodwill and Other Intangible Assets" ("SFAS 142"),
respectively. SFAS 141 supercedes Accounting Principles Board Opinion ("APB")
No. 16, "Business Combinations." The most significant changes made by SFAS 141
are: (1) requiring that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001, (2) establishing specific
criteria for the recognition of intangible assets separately from goodwill, and
(3) requiring unallocated negative goodwill to be written off immediately as an
extraordinary gain, instead of being amortized.
SFAS 142 supercedes Accounting Principals Board Opinion No. 17 ("APB 17"),
"Intangible Assets." SFAS 142 primarily addresses the accounting for goodwill
and intangible assets subsequent to their acquisition (i.e., post-acquisition
accounting). The provisions of SFAS 142 are effective for fiscal years beginning
after December 15, 2001 and must be adopted at the beginning of a fiscal year.
52
The most significant changes made by SFAS 142 are (1) goodwill and indefinite
life intangible assets will no longer be amortized, (2) goodwill will be tested
for impairment at least annually at the reporting unit level, (3) intangible
assets deemed to have an indefinite life will be tested for impairment at least
annually, and (4) the amortization period of intangible assets with finite lives
will no longer be limited to forty (40) years.
Effective January 1, 2002, the Company has adopted the provisions of SFAS
142 and changed its accounting accordingly As a result of the adoption of SFAS
142, the Company did not record amortization expense for existing goodwill
during the year ending December 31, 2002. The Company recorded amortization
expense of $7.4 million on this goodwill for the year ended December 31, 2001.
Any intangible assets acquired or goodwill arising from transactions after June
30, 2001 are subject to the amortization and non-amortization provisions of SFAS
141 and 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 is shown 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 the third quarter of 2003 the Company recorded an $89.0 million non-cash
goodwill impairment charge relating to the following businesses: $ 38.5 million
for specialty tubing, $47.0 million for precious metal plating, and $3.5 million
for precious metal fabrication. The Company recorded these charges because the
fair value of these reporting units, as determined by estimated cash flow
projections, was less than the reporting units' carrying value.
The following table provides comparative earnings per share, after
deducting preferred dividends, had the non-amortization provisions of SFAS 142
been adopted for all periods presented:
(in thousands)
YEAR ENDED DECEMBER 31,
2003 2002 2001
----------- ----------- -----------
Reported income (loss) before discontinued operations and
cumulative effect of an accounting change $ (188,632) $ (31,220) $ 76,376
Goodwill amortization -- -- 7,393
----------- ----------- -----------
Adjusted income (loss) before discontinued operations and
cumulative effect of an accounting change $ (188,632) $ (31,220) $ 83,769
=========== =========== ===========
Basic per share of common stock:
Reported income (loss) before discontinued operations and
cumulative effect of an accounting change $ (35.08) $ (5.86) $ 15.27
Goodwill amortization -- -- 1.48
----------- ----------- -----------
Adjusted income (loss) before discontinued operations and
cumulative effect of an accounting change $ (35.08) $ (5.86) $ 16.75
=========== =========== ===========
Diluted per share of common stock:
Reported income (loss) before discontinued operations and
cumulative effect of an accounting change $ (35.08) $ (5.86) $ 9.11
Goodwill amortization -- -- 0.70
----------- ----------- -----------
Adjusted income (loss) before discontinued operations and
cumulative effect of an accounting change $ (35.08) $ (5.86) $ 9.81
=========== =========== ===========
53
The changes in the carrying amount of goodwill for the year ended December 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
Impairment loss (50,500) (38,500) -- (89,000)
Pre acquisition foreign NOL utilized -- (213) -- (213)
--------- --------- --------- ---------
Balance at December 31, 2003 $ 56,471 $ 21,751 $ 47,150 $ 125,372
========= ========= ========= =========
The changes in the carrying amount of goodwill for the year ended December 31,
2002 were as follows:
(in thousands)
Precious Wire & Engineered
Metals Tubing Materials Total
--------- --------- --------- ---------
Balance as of January 1, 2002 $ 106,971 $ 104,918 $ 43,977 $ 255,866
Impairment loss -- (44,000) -- (44,000)
Pre acquisition foreign NOL utilized -- (454) -- (454)
Additions -- -- 3,173 3,173
--------- --------- --------- ---------
Balance at December 31, 2002 $ 106,971 $ 60,464 $ 47,150 $ 214,585
========= ========= ========= =========
The $3.2 million addition in 2002 is related to the acquisition of two
businesses that added complementary product lines to the Company's existing
Engineered Materials businesses. As of December 31, 2003 and 2002, the Company
had $0.8 million and $0.9 million, respectively, of other intangible assets,
which will continue to be amortized over their remaining useful lives ranging
from 3 to 17 years.
54
NOTE 12 - LONG-TERM DEBT
YEAR ENDED DECEMBER 31
-----------------------
2003 2002
-------- --------
(IN THOUSANDS)
Senior Notes due 2005, 10 1/2% $ 92,820 $110,504
Handy & Harman Senior Secured Credit Facility 129,080 130,465
Other 7,500 8,737
-------- --------
229,400 249,706
Less portion due within one year 40,056 --
-------- --------
Total long-term debt $189,344 $249,706
-------- --------
The fair value of long-term debt at December 31, 2003 and 2002 was $205,092
and $219,321, respectively. Fair value of long-term debt is estimated based on
trading in the public market and current market rates for similar debt
instruments.
Long-term debt maturing in each of the next five years (adjusted for the
March 31, 2004 refinancing of the H&H credit facility) is as follows: 2004,
$40,056; 2005, $96,887; 2006, $4,070; 2007, $75,073; 2008, $8,227; and
thereafter $5,087. In 2002, the Company had the ability, under its revolving
credit facility (see discussion below) and the intent to refinance on a
long-term basis the current portion of its outstanding indebtedness.
Accordingly, the Company reclassified current portions of long-term debt
amounting to $11.3 million as long-term debt as of December 31, 2002.
A summary of the financial agreements at December 31, 2003 follows:
WHX CORPORATION 10 1/2% SENIOR NOTES DUE 2005:
The WHX 10 1/2% Senior Notes in the amount of $92.8 million are due on
April 15, 2005. It is the Company's intention to refinance this obligation prior
to its scheduled maturity; however there can be no assurance that such
refinancing will be obtained. The Company's access to capital markets in the
future to refinance such indebtedness may be limited. If the Company were unable
to refinance this obligation, it would have a material adverse impact on the
liquidity, financial position and capital resources of WHX and would impact the
Company's ability to continue as a going concern. The financial statements do
not reflect any adjustments related to this matter.
On April 7, 1998, WHX issued $350.0 million principal amount of 10 1/2%
Senior Notes ("Notes"), which replaced privately placed notes of the same
amount. Interest on the Notes is payable semi-annually on April 15 and October
15 of each year, commencing October 15, 1998. The Notes mature on April 15,
2005.
The Notes are redeemable at the option of WHX, in whole or in part, on or
after April 15, 2002 at specified prices, plus accrued interest and liquidated
damages, if any, thereon to the date of redemption.
Upon the occurrence of a Change of Control (as defined), the Company is
required to make an offer to repurchase all or any part of each holder's Notes
at 101% of the principal amount thereof, plus accrued interest and liquidated
damages, if any, thereon to the date of repurchase.
The Notes are unsecured obligations of WHX, ranking senior in right of
payment to all existing and future subordinated indebtedness of WHX, and pari
passu with all existing and future senior unsecured indebtedness of WHX.
The Notes indenture, dated as of April 7, 1998 ("Indenture"), contains
certain covenants, including, but not limited to, covenants with respect to: (i)
limitations on indebtedness and preferred stock; (ii) limitations on restricted
payments; (iii) limitations on transactions with affiliates; (iv) limitations on
liens; (v) limitations on sales of assets; (vi) limitations on dividends and
other payment restrictions affecting subsidiaries; and (vii) restrictions on
consolidations, mergers and sales of assets.
55
On October 4, 2000, WHX successfully completed a solicitation of consents
from holders of the Notes to amend certain covenants and other provisions of the
Indenture. The amendments are set forth in the Supplemental Indenture and
provide, among other things, for amendments to certain covenants which restrict
the Company's ability to make restricted payments, incur additional
indebtedness, make permitted investments or utilize proceeds from asset sales.
The Supplemental Indenture prohibited the payment of dividends on the Company's
preferred stock until October 1, 2002, at the earliest, and thereafter only in
the event that the Company satisfies certain conditions set forth in the
Indenture, as amended by the Supplemental Indenture. Such conditions were not
satisfied as of December 31, 2003. In connection with the solicitation WHX made
a payment equal to 2% of the principal amount of the Notes ($20 in cash for each
$1,000 principal amount of Notes) to each holder of Notes whose consent was
received and accepted prior to the expiration date. Such payments amounted to
$5.5 million and will be amortized to interest expense over the remaining term
of the Notes
During 2001, the Company purchased and retired $36.4 million aggregate
principal amount of the Notes in the open market resulting in a gain of $19.0
million.
During 2002, the Company purchased and retired $134.6 million aggregate
principal amount of the Notes in the open market resulting in a gain of $42.5
million.
During 2003, the Company purchased and retired $17.7 million aggregate
principal amount of the Notes in the open market resulting in a gain of $3.0
million.
HANDY & HARMAN SENIOR SECURED CREDIT FACILITY
On July 30, 1998, H&H entered into its prior credit facility, a $300.0
million Senior Secured Credit facility ("Facilities") with Citibank, N.A., as
agent, which was refinanced on March 31, 2004. The Facilities are comprised of
(i) a $100.0 million 6-year Revolving Credit Facility, (ii) a $25.0 million
Delayed Draw Term Loan Facility (now expired) (iii) a $50.0 million 6-year Term
Loan A Facility, and (iv) a $125.0 million 8-year Term Loan B Facility. Interest
under the Facilities is calculated at a rate determined either using (i) the
Citibank prime rate or (ii) LIBOR, plus the Applicable Margin in effect from
time to time. Applicable Margin was a percentage per annum determined by
reference to the total leverage ratio of H&H. The rates in effect at December
31, 2003 were (a) in the case of the Term A Facility and the Revolving Credit
Facility, calculated at LIBOR + 1.50% and (b) in the case of the Term B
facility, calculated at LIBOR + 2.25%. Borrowings under the Facilities were
collateralized by the pledge of 100% of the capital stock of all H&H's active
U.S. subsidiaries and 65% of the stock of H&H's non-U.S. subsidiaries. In
addition, H&H provided a perfected first priority lien on and security interest
in substantially all the assets of H&H and its subsidiaries. The Facilities had
certain financial covenants restricting indebtedness, liens and cash
distributions that can be made to WHX. Certain financial covenants associated
with leverage, fixed charge coverage, capital spending and interest coverage
must be maintained. In 2003, 2002 and 2001, H&H received capital contributions
of $8.0 million, $5.0 million and $6.3 million, respectively, from WHX in order
to remain in compliance with certain of these financial covenants. Such funds
were utilized to reduce H&H debt. In April 2002, H&H entered into an interest
rate swap to convert $100.0 million of its variable-rate debt to a fixed rate
with Citibank, N.A. New York. The fixed rate is 4.79%, effective January 1, 2003
with a termination date of July 1, 2004. At December 31, 2003, the Company has
recognized a $0.6 million unrealized loss on this interest rate swap. In
September 2000, H&H entered into a cancelable interest-rate swap to convert
$125.0 million of its variable-rate debt to a fixed rate with Citibank, N.A.,
New York. The fixed rate was 6.75% percent, effective October 1, 2000, with a
termination date of September 30, 2001. Borrowings outstanding under the
Facilities at December 31, 2003 totaled $129.1 million. Letters of credit
outstanding under the facilities totaled $12.7 million at December 31, 2003.
H&H's prior revolving credit facility was scheduled to mature on July 31,
2004. The amount outstanding under the revolver at December 31, 2003 was $28.4
million. On March 31, 2004, H&H obtained new financing agreements to replace its
existing Senior Secured Credit Facilities, including the revolving credit
facility. The new financing agreements include a revolving credit facility and a
$22.2 million Term A Loan with Congress Financial Corporation ("Congress
Facilities") and a $71.0 million Term B Loan with Ableco Finance LLP ("Ableco").
Concurrently with the new financing agreements, WHX loaned $43.5 million to H&H
to repay, in part, the Senior Secured Credit Facilities. Such loan is
subordinated to the loans from Congress and Ableco. In addition, WHX deposited
$5.0 million of cash with Ableco as collateral security for the H&H obligation.
Portions of the cash collateral may be returned to WHX prior to maturity of the
Term B Loan if H&H meets and maintains certain defined leverage ratios.
56
The new revolving credit facility provides for up to $70.0 million of
borrowings dependent on the levels of and collateralized by eligible accounts
receivable and inventory. The new revolving credit facility provides for
interest at LIBOR plus 2.75% or the U.S. Base rate plus 1.00%. The Congress
Facilities mature on March 31, 2007. On March 31, 2004 H&H had approximately
$4.0 million of funds available under the new revolving credit facility after
deducting $10.0 million excess availability required at closing ($5.0 million
required thereafter). The Term Loan A is secured by eligible equipment and real
estate, and provides for interest at LIBOR plus 3.25% or U.S. Base rate plus
1.5%. Borrowings under the Congress Facilities are collateralized by first
priority security interests in and liens upon all present and future stock and
assets of H&H and its subsidiaries including all contract rights, deposit
accounts, investment property, inventory, equipment, real property, and all
products and proceeds thereof. The principal of the Term Loan A is payable in
monthly installments of $299,000. The Congress Facilities contain affirmative,
negative, and financial covenants (including minimum EBITDA, maximum leverage,
and fixed charge coverage, and restrictions on cash distributions that can be
made to WHX).
The Ableco $71.0 million Term B Loan matures on March 31, 2007 and provides
for annual payments based on 40% of excess cash flow as defined in the
agreement. Interest is payable monthly at the Prime Rate plus 8%. At no time
shall the Prime Rate of interest be below 4%. The Term B Facility has a second
priority security interest in and lien on all assets of H&H, subject only to the
prior lien of the Congress Facilities. The Term B facility contains affirmative,
negative, and financial covenants (including minimum EBITDA, maximum leverage,
and fixed charge coverage, and restrictions on cash distributions that can be
made to WHX).
In March 2004, H&H's wholly owned Danish subsidiary obtained new financing
agreements to replace and repay its existing debt which had been issued under a
multi-currency facility within the existing H&H Senior Secured Credit
Facilities. The new Danish facilities are with a Danish Bank and include a
revolving credit facility and term loans. At March 31, 2004 there was
approximately $0.5 million outstanding under the new revolving credit facility
and $6.4 million outstanding under the term loans.
RESTRICTED NET ASSETS OF SUBSIDIARIES
As described above the prior Handy & Harman loan agreement contained
provisions restricting cash payments to WHX. The agreement allowed the payment
of management fees, income taxes pursuant to a tax sharing agreement and certain
other expenses. In addition dividends could be paid under certain conditions. At
December 31, 2003, the net assets of H&H amounted to $111.1 million, all of
which was restricted as to the payment of dividends to WHX.
INTEREST COST
Aggregate interest costs on debt and amounts capitalized during the three years
ended December 31 are as follows:
2003 2002 2001
------- ------- -------
(IN THOUSANDS)
Aggregate interest expense $19,166 $27,257 $46,969
Less: Capitalized interest -- -- --
------- ------- -------
Interest expense $19,166 $27,257 $46,969
======= ======= =======
Interest Paid $17,192 $27,358 $45,555
======= ======= =======
NOTE 13 - STOCKHOLDERS' EQUITY
The authorized capital stock of WHX consists of 60,000,000 shares of Common
Stock, $.01 par value, of which 5,485,856 and 5,405,856 shares were outstanding
as of December 31, 2003 and 2002, respectively, and 10,000,000 shares of
Preferred Stock, $.10 par value, of which 2,573,926 shares of Series A
Convertible Preferred Stock and 2,949,000 shares of Series B Convertible
Preferred Stock were outstanding as of December 31, 2003 and 2002.
SERIES A CONVERTIBLE PREFERRED STOCK AND SERIES B CONVERTIBLE PREFERRED STOCK
In July 1993, the Company issued 3,000,000 shares of Series A Convertible
Preferred Stock for net proceeds of $145.0 million. On October 4, 2000, pursuant
to a solicitation of consents from holders of its 10 1/2% Senior Notes, certain
covenants and other provisions of the indebtedness were amended. The
Supplemental Indenture prohibited the payment of dividends on the Company's
preferred stock until October 1, 2002, at the earliest, and thereafter only in
the event that the Company satisfied certain conditions set forth in the
Indenture, as amended by the Supplemental Indenture. Such conditions were not
satisfied as of December 31, 2003. Dividends on the shares of the Series A
Convertible Preferred Stock are cumulative and are payable quarterly in arrears
on January 1, April 1, July 1 and October 1 of each year, in an amount equal to
$3.25 per share per annum.
57
Each share of the Series A Convertible Preferred Stock is convertible at
the option of the holder thereof at any time into shares of Common Stock of the
Company, par value $.01 per share, at a conversion rate of 1.0562 shares of
Common Stock for each share of Series A Convertible Preferred Stock, subject to
adjustment under certain conditions.
The Series A Convertible Preferred Stock is redeemable at the option of the
Company, in whole or in part, for cash, initially at $52.275 per share and
thereafter at prices declining ratably to $50 per share on and after July 1,
2003, plus, in each case, accrued and unpaid dividends to the redemption date.
The Series A Convertible Preferred Stock is not entitled to the benefit of any
sinking fund. During 2002 and 2001, 40,300 and 293,599 shares respectively were
converted into Common Stock. There were no conversions in 2003.
The Company issued 3,500,000 shares of Series B Convertible Preferred Stock
in September 1994 for net proceeds of $169.8 million. On October 4, 2000,
pursuant to a solicitation of consents from holders of its 10 1/2% Senior Notes,
certain covenants and other provisions of the indebtedness were amended. The
Supplemental Indenture prohibited the payment of dividends on the Company's
preferred stock until October 1, 2002, at the earliest, and thereafter only in
the event that the Company satisfied certain conditions set forth in the
Indenture, as amended by the Supplemental Indenture. Such conditions were not
satisfied as of December 31, 2003. Dividends on the shares of the Series B
Convertible Preferred Stock are cumulative and payable quarterly in arrears on
January 1, April 1, July 1 and October 1 of each year, in an amount equal to
$3.75 per share per annum.
Each share of the Series B Convertible Preferred Stock is convertible at
the option of the holder thereof at any time into shares of Common Stock of the
Company, par value $.01 per share, at a conversion rate of 0.8170 share of
Common Stock for each share of Series B Convertible Preferred Stock, subject to
adjustment under certain conditions.
The Series B Convertible Preferred Stock is redeemable at the option of the
Company, in whole or in part, for cash, initially at $52.625 per share and
thereafter at prices declining ratably to $50 per share on and after October 1,
2004, plus, in each case, accrued and unpaid dividends to the redemption date.
The Series B Convertible Preferred Stock is not entitled to the benefit of any
sinking fund. During 2002 and 2001, 7,700 and 18,400 shares, respectively were
converted into Common Stock. There were no conversions in 2003.
At December 31, 2003, dividends in arrears to Series A and Series B
Convertible Preferred Shareholders were $27.2 million and $35.9 million,
respectively. Presently, management believes that it is not likely that the
Company will be able to pay these dividends in the foreseeable future.
2003 INCENTIVE STOCK PLAN
The WHX Corporation 2003 Incentive Stock Plan ("2003 Plan"), is intended to
assist the Company in securing and retaining in the employ of the Company (and
any subsidiary to the Company) directors, officers, consultants, advisors and
employees by allowing them to participate in the ownership and the development
and financial success of the Company through the grant of incentive and
non-qualified options (collectively, the "Options"), stock appreciation rights,
restricted stock, and other equity incentives or stock or stock based awards
("Equity Incentives"). Incentive stock options granted under the Option Plan are
intended to be "Incentive Stock Options" as defined by Section 422 of the United
States Internal Revenue Code of 1986, as amended (the "Code").
An aggregate of 250,000 shares of Common Stock shall be subject to the 2003
Plan. The 2003 Plan is administered by a committee ("Committee") consisting of
two or more non-employee members of the Board of Directors. The term of Options
granted under the 2003 Plan may not exceed 10 years (five years in the case of
an incentive Option granted to an optionee owning more than 10% of the voting
stock of the Company (a "10% Holder")). The Option price for Options shall not
be less than 100% of the fair market value of the shares of Common Stock at the
time the Option is granted; provided, however, that with respect to an incentive
option, in the case of a 10% Holder, the purchase price per share shall be at
least 110% of such fair market value. The aggregate fair market value of the
shares of Common Stock as to which an optionee may first exercise incentive
stock options in any calendar year may not exceed $100,000. Payment for shares
purchased upon exercise of Options is to be made in cash, but, at the discretion
of the Committee, may be made by delivery of other shares of Common Stock of
comparable value.
58
In 2003 the Company awarded 80,000 shares of restricted common stock to
members of the Board of Directors at a fair market value of $2.48 per share.
These shares vested 1/3 immediately and 1/3 each year thereafter over a two-year
period and are recorded as a separate component of Stockholders Equity.
Compensation expense related to restricted stock awards is recognized over the
vesting period.
2001 STOCK OPTION PLAN
The WHX Corporation 2001 Stock Option Plan ("2001 Plan"), is intended to
assist the Company in securing and retaining in the employ of the Company (and
any subsidiary to the Company) directors, officers, consultants, advisors and
employees by allowing them to participate in the ownership and the development
and financial success of the Company through the grant of incentive and
non-qualified options (collectively, the "2001 Options"). Incentive stock
options granted under the Option Plan are intended to be "Incentive Stock
Options" as defined by Section 422 of the Code.
An aggregate of 500,000 shares of Common Stock have been reserved for
issuance upon exercise of Options under the 2001 Plan. The 2001 Plan is
administered by a committee ("2001 Committee") consisting of two or more
non-employee members of the Board of Directors. The term of Options granted
under the 2001 Plan may not exceed 10 years (five years in the case of an
incentive 2001 Option granted to an optionee owning more than 10% of the voting
stock of the Company (a "10% Holder")). The Option price for 2001 Options shall
not be less than 100% of the fair market value of the shares of Common Stock at
the time the Option is granted; provided, however, that with respect to an
incentive option, in the case of a 10% Holder, the purchase price per share
shall be at least 110% of such fair market value. The aggregate fair market
value of the shares of Common Stock as to which an optionee may first exercise
incentive stock options in any calendar year may not exceed $100,000. Payment
for shares purchased upon exercise of 2001 Options is to be made in cash, but at
the discretion of the 2001 Committee, may be made by delivery of other shares of
Common Stock of comparable value.
1991 STOCK OPTION PLAN
The WHX Corporation Stock Option Plan ("1991 Plan"), as amended, is
intended to assist the Company in securing and retaining key employees by
allowing them to participate in the ownership and growth of the Company through
the grant of incentive and non-qualified options (collectively, the "1991
Options") to full-time employees of the Company and its subsidiaries. In 2001,
the 1991 Plan was amended. This amendment expanded the definition of persons
eligible to receive grants of options under the 1991 Plan to directors,
officers, consultants, advisors and employees of WHX and its subsidiaries.
Incentive stock options granted under the Option Plan are intended to be
"Incentive Stock Options" as defined by Section 422 of the Code.
An aggregate of 1,250,000 shares of Common Stock have been reserved for
issuance upon exercise of 1991 Options under the 1991 Plan, as amended. The 1991
Plan is administered by a committee (the "1991 Committee") consisting of not
less than two non-employee members of the Board of Directors. The term of 1991
Options granted under the 1991 Plan may not exceed 15 years (five years in the
case of an incentive 1991 Option granted to an optionee owning more than 10% of
the voting stock of the Company. The Option price for 1991 Options shall not be
less than 100% of the fair market value of the shares of Common Stock at the
time the 1991 Option is granted; provided, however, that with respect to an
incentive option, in the case of a 10% Holder, the purchase price per share
shall be at least 110% of such fair market value. The aggregate fair market
value of the shares of Common Stock as to which an optionee may first exercise
incentive stock options in any calendar year may not exceed $100,000. Payment
for shares purchased upon exercise of Options is to be made in cash, but at the
discretion of the 1991 Committee, may be made by delivery of other shares of
Common Stock of comparable value.
DIRECTORS OPTION PLANS
The 1993 Directors D&O Plan ("1993 D&O Plan") is authorized to issue shares
of Common Stock pursuant to the exercise of options with respect to a maximum of
133,333 shares of Common Stock. The options vest over three years from the date
of grant. The 1997 Directors Stock Option Plan ("1997 D&O Plan") is authorized
to issue an additional 133,333 shares of Common Stock.
OPTION GRANTS TO WPN CORPORATION
On July 29, 1993 ("Approval Date"), the Board of Directors approved the
grant of options to WPN Corp. (See Note 15to the Consolidated Financial
Statements) to purchase 333,333 shares of Common Stock ("Option Grants"). The
Option Grants were approved by the stockholders on March 31, 1994. These options
expired unexercised on April 29, 2003.
On August 4, 1997 the compensation committee of the Board of Directors
granted an option to purchase 333,333 shares of Common Stock to WPN Corp, at the
then market price per share, subject to stockholder approval. The Board of
Directors approved such grant on September 25, 1997, and the stockholders
approved it on December 1, 1997 (measurement date). In January 2004 WPN Corp.
elected to cancel the options to purchase 333,333 shares of common stock.
59
A SUMMARY OF THE OPTION PLANS:
NUMBER OF OPTIONS WEIGHTED
1991 D&O WPN 2001 2003 PRICES AVERAGE
PLAN PLAN GRANT PLAN PLAN LOW HIGH OPTION PRICE
---------------------------------------------------------------------------------------------------------
Balance 01/01/01 949,278 187,222 666,667 -- -- $ 18.375 $ 49.875 35.730
Granted 95,000 -- -- 366,667 -- 4.890 4.890 4.890
Cancelled (104,393) -- -- (10,000) -- 4.890 49.875 39.627
-------- ------- ------- ------- -------
Balance 12/31/01 939,885 187,222 666,667 356,667 -- 4.890 49.875 28.602
Granted -- -- -- 86,000 -- 2.300 2.300 2.300
Cancelled (132,254) (25,222) -- (65,667) -- 4.890 49.875 25.459
-------- ------- ------- ------- -------
Balance 12/31/02 807,631 162,000 666,667 377,000 -- 2.300 49.875 27.805
Granted 193,255 -- -- 198,167 160,078 2.410 3.1500 2.624
Cancelled (524,797) (52,000) (333,334) (93,667) -- 2.300 49.875 34.500
-------- ------- ------- ------- -------
Balance 12/31/03 476,089 110,000 333,333 481,500 160,078 2.300 49.875 14.603
======== ======= ======= ======= =======
Options exercisable 231,528 110,000 333,333 329,722 53,359 2.300 49.875 19.910
======== ======= ======= ======= =======
Options outstanding at December 31, 2003, which are exercisable, totaled
1,057,943 and have a weighted average option price of $19.91. Options
outstanding at December 31, 2003 had a weighted-average remaining life of 6.1
years.
60
EARNINGS PER SHARE
The computation of dilutive earnings per common share in 2001 assumes
conversion of preferred stock and redeemable common stock. The computation of
basic earnings per common share is based upon the weighted average number of
shares of Common Stock outstanding. In 2003, the conversion of preferred stock,
the exercise of options, and the inclusion of non-vested restricted stock awards
would have had an anti-dilutive effect. At December 31, 2003 and 2002 the
assumed conversion of preferred stock would increase outstanding shares of
common stock by 5,127,914 shares. At December 31, 2003 the exercise of stock
options would increase outstanding shares of common stock by 31,073 shares. At
December 31, 2003 there were 60,000 shares of non-vested common stock associated
with restricted stock awards. At December 31, 2001 conversion of preferred
shares would have increase outstanding common shares by 5,176,769. A
reconciliation of the income and shares used in the computation follows:
YEAR ENDED DECEMBER 31, 2003
INCOME (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------------- ----------------------- -----------------------
(DOLLARS AND SHARES IN THOUSANDS)
Loss from continuing operations $ (169,208)
Less: Preferred stock dividends 19,424
----------------------
Basic EPS and Diluted EPS
Loss available to common stockholders $ (188,632) 5,377 $ (35.08)
====================== ======================= =======================
The assumed conversion of preferred stock, the exercise of stock options
and the effect of non-vested restricted stock awards had an anti-dilutive effect
on earnings per-share in 2003.
YEAR ENDED DECEMBER 31, 2002
INCOME (LOSS) SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------------- ----------------------- -----------------------
(DOLLARS AND SHARES IN THOUSANDS)
Loss from continuing operations $ (11,996)
Less: Preferred stock dividends 19,224
----------------------
Basic EPS and Diluted EPS
Loss available to common stockholders $ (31,220) 5,325 $ (5.86)
====================== ======================= =======================
The assumed conversion of preferred stock and the exercise of stock options
would have had an anti-dilutive effect on earnings per-share in 2002.
61
YEAR ENDED DECEMBER 31, 2001
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------- ------- ------
(DOLLARS AND SHARES IN THOUSANDS)
Income from continuing operations $95,705
Less: Preferred stock dividends 19,329
-------
Basic EPS
Income available to common stockholders 76,376 5,004 $15.27
------- ------- ------
Effect of Dilutive Securities
Convertible preferred stock 19,329 5,432
Redeemable common stock -- 72
------- -------
Diluted EPS
Income available to common stockholders
plus assumed conversions $95,705 10,508 $ 9.11
======= ======= ======
Accumulated other comprehensive income (loss) balances as of December 31,
2003 and December 31, 2002 were comprised as follows:
(in thousands)
December 31, December 31,
2003 2002
Minimum pension liability adjustment $(23,996) $(53,458)
Deferred taxes - minimum liablity adjustment $ -- $ 18,710
Foreign currency translation adjustment 2,354 (1,027)
-------- --------
$(21,642) $(35,775)
======== ========
NOTE 14- COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments:
Rent expense for continuing operations for the WHX Group in 2003, 2002 and
2001 was $2.2 million, $3.0 million and $3.1 million respectively. Operating
lease and rental commitments for future years are as follows (in thousands):
2004 $1,683
2005 1,660
2006 1,326
2007 913
2008 7
------
$5,589
======
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"), and that the Company violated Rules
14d-4(c) and 14d-6(d) under the Exchange Act upon expiration of the Offer. The
SEC does not claim that the Offer was intended to or in fact defrauded any
investor. 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.
62
The Division of Enforcement filed a petition and brief for the SEC to
review the decision, but only as to the All Holders Rule Claim. On June 4, 2003,
the SEC issued an Opinion of the Commission that found that the Company had
violated the "All Holders Rule" and ordered that the Company cease and desist
from further violations of Section 14(d)(4) of the Exchange Act or the "All
Holders Rule." The Company filed a petition for review of the SEC's decision
with the United States Court of Appeals for the District of Columbia. On April
9, 2004, the Court of Appeals vacated the SEC's cease and desist order, and the
portion of the SEC's Opinion that found the order justified, because both were
arbitrary and capricious. The Court's Opinion also expressly explained that the
Court did not need to reach (and did not reach) the Company's other claims,
which, among other things, challenged the merits of the SEC's finding that the
Company violated the "All Holders Rule." The Company does not know at this time
whether the SEC will seek further appellate review of the Court's Opinion.
PBGC ACTION
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
Plan. WHX filed an answer to this complaint on March 27, 2003, contesting the
PBGC's action. On July 24, 2003, the Company entered into an agreement among the
PBGC, Wheeling-Pittsburgh Corporation ("WPC"), Wheeling-Pittsburgh Steel
Corporation ("WPSC"), and the United Steelworkers of America, AFL-CIO-CLC
("USWA") in settlement of matters relating to the PBGC v. WHX CORPORATION, Civil
Action No. 03-CV-1553, in the United States District Court for the Southern
District of New York ("Termination Litigation"), in which the PBGC was seeking
to terminate the WHX Plan. Under the settlement, among other things, WHX agreed
(a) that the WHX Plan, as it is currently constituted, is a single employer
pension plan, (b) to contribute funds to the WHX Plan equal to moneys spent (if
any) by WHX or its affiliates to purchase WHX 10.5% Senior Notes ("Senior
Notes") in future open market transactions, and (c) to grant to the PBGC a pari
passu security interest of up to $50.0 million in the event WHX obtains any
future financing on a secured basis or provides any security or collateral for
the Senior Notes. Also, under the settlement, the PBGC agreed (a) that, after
the effective date of the POR, if it terminates the WHX Plan at least one day
prior to a Steel facility shutdown, WHX shall be released from any additional
liability to PBGC resulting from the shutdown, (b) to withdraw its claims in the
WPC Bankruptcy Proceedings; and (c) to dismiss the Termination Litigation.
For additional information concerning these developments, see Notes 3 and
14 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.
ENVIRONMENTAL MATTERS
Prior to the consummation of the POR, WHX was the sole stockholder of WPC,
the parent company of the WPC Group. The WPC Group 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. The WPC Group entered
into a Settlement Agreement with the US EPA that resolves all of the US EPA's
pre-petition unsecured claims under the Superfund law and releases the WPC Group
from any future liability for such claims. The Bankruptcy Court approved the
Settlement Agreement by order entered June 13, 2003.
In the event the WPC Group is responsible for any environmental liabilities
relating to the period prior to the consummation of the POR, and is unable to
fund these liabilities, claims may be made against WHX for payment of such
liabilities.
63
NOTE 15 - RELATED PARTY TRANSACTIONS
The former Chairman of the Board of the Company is the president and sole
shareholder of WPN Corp. ("WPN"). Pursuant to a management agreement as amended,
and approved by a majority of the non-management directors of the Company, WPN
provided certain financial, management advisory and consulting services to the
Company. Such services included, among others, identification, evaluation and
negotiation of acquisitions, responsibility for financing matters for the
Company and its subsidiaries, review of annual and quarterly budgets,
supervision and administration, as appropriate, of all the Company's accounting
and financial functions and review and supervision of reporting obligations
under Federal and state securities laws. In exchange for such services, WPN
received a monthly fee of $520,833 in 2002 and 2001. In 2003 WPN received a
monthly fee of $520,833 through October and $400,000 per month thereafter. In
January 2004 the Company announced, among other things, the retirement of the
Chairman of the Board. In connection with this announcement, effective February
1, 2004, the management agreement between WHX and WPN was terminated.
On August 4, 1997 the compensation committee of the Board of Directors
granted an option to purchase 333,333 shares of Common Stock to WPN Corp, at the
then market price per share, subject to stockholder approval. The Board of
Directors approved such grant on September 25, 1997, and the stockholders
approved it on December 1, 1997 (measurement date). In January 2004 WPN Corp.
elected to cancel the options to purchase 333,333 shares of common stock.
The WPC Group was included in the Company's consolidated federal income tax
return. WHX and the WPC Group had entered into a tax sharing agreement, dated
July 26, 1994, which provided that the WPC Group would be paid for any reduction
in the combined consolidated federal income tax liability resulting from the
utilization or deemed utilization of deductions, losses and credits, whether
from current or prior years, which are attributable to WPC. The Tax Sharing
Agreement was terminated in 2001 as part of the Settlement Agreement. As a
result, WHX was able to recognize benefits from WPC's net operating losses (See
Note 7 to the Consolidated Financial Statements). The WPC Group's tax attributes
were available to the WHX Group through December 31, 2003, and are no longer
available.
As part of the Settlement Agreement, WHX paid $32.0 million to the WPC
Group in 2001. As a result of the Settlement Agreement, among other things, all
intercompany receivables and liabilities were settled. In addition WHX acquired
the net assets of CMCC from the WPC Group.
The WPC Group participates in the WHX defined benefit pension plan. As a
result of the Settlement Agreement, WHX may not charge any pension expense to
the WPC Group with respect to the WHX Pension Plan through December 31, 2002. As
a result, WHX incurred non-cash pension expense of approximately $52.9 million
(including curtailment and special termination benefits), $14.0 million and
$15.0 million for the WPC Group in 2003, 2002 and 2001, respectively. The
non-cash pension expense for 2003 includes $48.1 million pension curtailment and
termination benefit charges related to the consummation of the WPC Group Plan of
Reorganization. (See Note 6 to the Consolidated Financial Statements).
On June 1, 2001, WHX purchased from Citibank a $30.5 million participation
in the DIP Credit Agreement for the WPC Group for which WHX received interest at
a rate of 13% per annum, paid monthly and an additional 3.0% per annum payment
in-kind.
As a result of the October Order, WHX provided the WPC Group with $5.0
million in financing in 2001. In addition, WHX provided up to $5.0 million in
liquidity support to the WPC Group. At July 31, 2003, the outstanding balance of
these advances was $7.1 million. As part of the POR, the Company had
conditionally agreed to make certain contributions (the "WHX Contributions") to
the reorganized company. Under the WHX Contributions, the Company forgave the
repayment of its claims against the WPC Group of approximately $39.0 million
and, additionally, contributed to the reorganized company $20.0 million of cash,
for which the Company received a note in the amount of $10.0 million (the note
has been fully reserved by WHX). See Note 3 to the Consolidated Financial
Statements for further details regarding the settlement of the WPC bankruptcy.
NOTE 16 - OTHER INCOME AND (EXPENSE)
YEAR ENDED DECEMBER 31,
2003 2002 2001
-------- -------- --------
(IN THOUSANDS)
Interest and investment income/(loss) $ 6,465 $ 5,115 $ (4,411)
Interest rate swap (625) (4,781) --
Foreign currency transaction loss (2,255) -- --
Wheeling-Downs Racing Association, Inc. -- -- 14,957
Other, net (3,807) (3,746) 584
-------- -------- --------
$ (222) $ (3,412) $ 11,130
======== ======== ========
64
The WHX Group received management fees from Wheeling-Downs Racing
Association, Inc. of $12.9 million in the year ended December 31, 2001. These
fees are included in the above table as part of the Wheeling-Downs Racing
Association, Inc. other income.
NOTE 17 - GAIN ON SALE OF INTEREST IN WHEELING-DOWNS RACING ASSOCIATION, INC.
In December 2001, the WHX Group sold its 50% interest in Wheeling-Downs
Racing Association, Inc. for $105.0 million, resulting in an $88.5 million
pre-tax gain.
NOTE 18 - GAIN ON EARLY RETIREMENT OF DEBT
YEAR ENDED DECEMBER 31,
2003 2002 2001
-------- -------- --------
(IN THOUSANDS)
Discount on early debt retirement $ 3,382 $ 46,943 $ 20,525
Unamortized debt issuance cost (153) (1,729) (592)
Unamortized consent fee (230) (2,723) (922)
-------- -------- --------
$ 2,999 $ 42,491 $ 19,011
======== ======== ========
In 2003, the Company purchased and retired $17.7 million aggregate
principal amount of 10 1/2% Senior Notes in the open market resulting in a $3.0
million gain. In 2002, the Company purchased and retired $134.6 million
aggregate principal amount of 10 1/2% Senior Notes in the open market resulting
in a $42.5 million gain. In 2001, the Company purchased and retired $36.4
million aggregate principal amount of 10 1/2% Senior Notes in the open market
resulting in a $19.0 million gain.
NOTE 19 - 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 and for the 2001 period, goodwill amortization. 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
years ending December 31:
65
(in thousands)
2003 2002 2001
--------- --------- ---------
Revenue
Precious Metal $ 84,572 $ 142,260 $ 168,308
Wire & Tubing 121,939 132,194 133,621
Engineered Materials 119,785 111,939 86,210
--------- --------- ---------
Consolidated revenue $ 326,296 $ 386,393 $ 388,139
========= ========= =========
Segment operating income (loss)
Precious Metal $ (47,581) $ (3,536) $ 7,982
Wire & Tubing (42,566) (14,071) 3,407
Engineered Materials 8,755 9,624 7,901
--------- --------- ---------
Subtotal (81,392) (7,983) 19,290
Unallocated corporate expenses 16,376 17,374 16,732
Pension - curtailment & special termination benefits 48,102 -- --
Loss on disposal of assets (a) 6,286 2,576 18
Goodwill amortization -- -- 7,393
--------- --------- ---------
Operating income (loss) (152,156) (27,933) (4,853)
Interest expense 19,166 27,257 46,969
Equity in loss of WPC -- 20,000 --
Gain on disposition of WPC 534 -- --
Gain on early retirement of debt 2,999 42,491 19,011
Gain on sale of Wheeling-Downs -- 88,517
Other income (expense) (222) (3,412) 11,130
--------- --------- ---------
Income (loss) before taxes, discontinued operations
and cumulative effect of an accounting change (168,011) (36,111) 66,836
Income tax expense (benefit) 1,197 (24,115) (28,869)
Income from discontinued operations - net of tax -- 10,601 5,416
Gain on sale of Unimast - net of tax of $6,886 -- 11,861 --
--------- --------- ---------
Income (loss) before cumulative effect of an
accounting change (169,208) 10,466 101,121
Cumulative effect of an accounting change - net of tax -- (44,000) --
--------- --------- ---------
Net income (loss) $(169,208) $ (33,534) $ 101,121
========= ========= =========
(a) Loss (gain) on disposal of assets includes the following amounts by segment
for 2003 and 2002, respectively: Precious Metal - $4,557 and ($749); Wire & Tube
- - $1,485 and $2,044; Engineered Materials - $0 and $764
The following table presents revenue and long-lived asset information by
geographic area as of and for the years ended December 31. Long-lived assets
consist of property, plant and equipment and the Company's 50% investment in H&H
Manufacturing (Singapore).
GEOGRAPHIC INFORMATION
REVENUE LONG-LIVED ASSETS
(IN THOUSANDS) 2003 2002 2001 2003 2002 2001
-------- -------- -------- -------- -------- --------
United States $306,824 $361,679 $364,268 $ 95,671 $ 97,191 $125,232
Foreign 20,102 24,714 23,871 12,441 14,186 13,770
-------- -------- -------- -------- -------- --------
$326,926 $386,393 $388,139 $108,112 $111,377 $139,002
======== ======== ======== ======== ======== ========
Foreign revenue is based on the country in which the legal subsidiary is
domiciled. Revenue from no single foreign country was material to the
consolidated revenues of the Company.
66
NOTE 20 - QUARTERLY INFORMATION (UNAUDITED)
Financial results by quarter for the two fiscal years ended December 31, 2003
and 2002 are as follows:
BASIC
EARNINGS BASIC DILUTED
(LOSS) EARNINGS EARNINGS
PER SHARE (LOSS) (LOSS)
OPERATING DISCONTINUED NET FROM PER SHARE PER SHARE
NET INCOME OPERATIONS INCOME CONTINUING ON NET ON NET
SALES (LOSS) (NET OF TAX) (LOSS) OPERATIONS INCOME INCOME
----- ------ ------------ ------ ---------- ------ ------
(IN THOUSANDS - EXCEPT PER SHARE)
2003:
1st Quarter $ 81,000 $ (7,935) $ -- $ (8,848) $(2.57) $(2.57) $(2.57)
2nd Quarter 83,519 (4,383) -- (4,058) (1.67) (1.67) (1.67)
3rd Quarter 83,269 (132,693)(f) -- (142,565) (27.38) (27.38) (27.38)
4th Quarter 78,508 (7,144) -- (13,737) (3.43) (3.43) (3.43)
2002:
1st Quarter $ 92,823 $ 616 $ 1,851 $ (19,298)(a) $(4.90) $(4.55) $(1.83)
2nd Quarter 109,159 (4,952) 6,492 7,786(b) (0.66) 0.57 0.57
3rd Quarter 105,153 (12,394) 14,005(c) (1,364)(d) (3.79) (1.17) 1.17
4th Quarter 79,258 (11,203) 114 (20,658)(e) (4.81) (4.79) (4.79)
(a) Includes $44,000 charge for cumulative effect of an accounting change and
$18,861 gain on early retirement of debt.
(b) Includes $6,955 in restructuring charges and $7,292 gain on early
retirement of debt.
(c) Includes $11,747 gain on sale of discontinued operation.
(d) Includes $3,275 in restructuring charges and $164 gain on early retirement
of debt.
(e) Includes $2,766 in restructuring charges, $1,302 gain on early retirement
of debt and $20,000 Equity in loss of WPC.
(f) Includes $89,000 goodwill impairment charge and $48,102 pension curtailment
and special termination benefit charge.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
NOT APPLICABLE.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO")
have evaluated WHX Corporation's disclosure controls and procedures, as defined
in the rules of the SEC, within 90 days of the filing date of this report and
have determined that such controls and procedures were effective in ensuring
that material information relating to WHX Corporation and its consolidated
subsidiaries was made known to them during the period covered by this report.
Internal Controls
Our CEO and CFO are primarily responsible for the accuracy of the
financial information that is presented in this report. To meet their
responsibility for financial reporting, they have established internal controls
and procedures, which they believe are adequate to provide reasonable assurance
that WHX Corporation's assets are protected from loss. These internal controls
are reviewed by WHX Corporation's internal auditors in order to monitor
compliance and by our independent auditors to support their audit work. In
addition, our Board's Audit Committee, which is composed entirely of outside
directors, meets regularly with management, internal auditors and the
independent accountants to review accounting, auditing and financial matters.
This committee and the independent accountants have free access to each other,
with or without management being present.
There were no significant changes in WHX Corporation's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of the CEO's and CFO's most recent evaluation.
67
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required under this item is incorporated by reference
to the Company's Proxy Statement for the 2004 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated by reference
to the Company's Proxy Statement for the 2004 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated by reference
to the Company's Proxy Statement for the 2004 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated by reference
to the Company's Proxy Statement for the 2004 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated herein by reference is the material under the headings
"Audit Fees and Non-Audit Fees" and "Policy on Audit Committee Pre-Approval of
Audit and Permissible Non-Audit Services of the Independent Auditor" in the 2004
Proxy Statement.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 3. EXHIBITS
2.1 Third Amended Joint Plan of Reorganization of
Wheeling-Pittsburgh Steel Corporation, dated May 19,2003.
Incorporated herein by reference to Exhibit 2.1 to
Wheeling-Pittsburgh Corporation's Registration Statement on Form
10(File No. 0-50300) ("Form 10").
3.1 Certificate of Incorporation of the Company -- Incorporated
herein by reference to Exhibit 3.2 to the Company's Form S-4
Registration Statement (No. 33-53591).
3.2 Certificate of Designations filed with the Delaware Secretary of
State on September 22, 1994 - Incorporated herein by reference
to Exhibit 4.3 to the Company's Form S-3 Registration Statement
(No. 33-54831).
3.3 Certificate of Amendment to Certificate of Incorporation filed
with the Delaware Secretary of State on January 23, 1997 -
Incorporated herein by reference to Exhibit 3.3 to the Form 10-K
filed March 29, 2000.
3.4 Certificate of Amendment to Certificate of Incorporation filed
with the Delaware Secretary of State on November 10, 1999 -
Incorporated herein by reference to Exhibit 99.2 to the Form 8-K
filed November 11, 1999.
*3.5 Certificate of Amendment to Certificate of Incorporation filed
with the Delaware Secretary of State on August 22, 2002.
3.6 Amended and Restated By-Laws of the Company - Incorporated
herein by reference to Exhibit 99.2 to the Form 8-K filed
November 11, 1999.
4.1 Credit Agreement dated as of July 30, 1998 among Handy & Harman,
Handy & Harman of Canada, Limited, Handy & Harman Europe
Limited, Rigby-Maryland (Stainless) Limited and Indiana Tube
Danmark A/S
68
and the Initial Lenders, Initial Issuing Banks and Swing Line
Bank named therein and Citicorp USA, Inc. as collateral agent
and administrative agent. - Incorporated herein by reference to
Exhibit 4.11 to the 1998 Form 10-K.
*4.2 Loan and Security Agreement by and among Handy & Harman, certain
of its affiliates and Congress Financial Corporation dated March
31, 2004.
*4.3 Three Loan and Security Agreement by and among Handy & Harman,
Certain of Its Affiliates and Ableco Finance LLC dated March 31,
2004.
10.1 Management Agreement dated as of January 3, 1991 between the
Company and WPN Corp. - Incorporated herein by reference to
Exhibit 10.11 to the 1990 10-K.
10.2 Amendment No. 1 to Management Agreement dated as of January 1,
1993 between the Company and WPN Corp. -- Incorporated herein by
reference to Exhibit 10.8 to the Company's Form S-2 Registration
Statement filed February 23, 1993 (the "February Form S-2").
10.3 Amendment No. 2 to Management Agreement dated as of April
11, 1994 between the Company and WPN Corp.-- Incorporated herein
by reference to Exhibit 10.9 to the 1994 Form 10-K.
10.4 Amendment No. 3 to Management Agreement dated as of April 1,
1996 between the Company and WPN Corporation-- Incorporated
herein by reference to Exhibit 10.9 to the 1996 Form 10-K.
10.5 Amendment No. 4 to Management Agreement dated as of April 13,
1998 between the Company and WPN Corporation-- Incorporated
herein by reference to Exhibit 10.9 to the 1998 Form 10-K.
10.6 Amended and Restated 1991 Incentive and Nonqualified Stock
Option Plan - Incorporated herein by reference to Exhibit 4.1 to
WHX's Form S-8 filed July 9, 2001.
10.7 1997 Directors Stock Option Plan-- Incorporated herein by
reference to Exhibit 10.11 to the 1997 Form 10-K.
10.8 2001 Stock Option Plan - Incorporated herein by reference to
Exhibit 4.2 to WHX's Form S-8 filed July 9, 2001.
10.9 2003 Incentive Stock Plan - Incorporated herein by reference to
Exhibit 4.1 to the Company's Form S-8 Registration Statement.
10.10 Settlement and Release Agreement, dated as of May 25, 2001, by
and among Wheeling- Pittsburgh Steel Corporation and
Wheeling-Pittsburgh Corporation, WHX Corporation and certain
affiliates of WPSC, WPC and WHX as specified on the signature
pages thereto - Incorporated herein by reference to Exhibit 99.1
to the Form 8-K filed May 30, 2001.
10.11 Stock Redemption Agreement dated as of November 16, 2001 by and
among WHX Entertainment Corp., Sportsystems Corporation and
Wheeling-Downs Racing Association, Inc.
10.12 Stock Purchase Agreement dated as of June 24, 2002 by and
between Worthington Industries, Inc. and WHX Corporation.
10.13 Agreement dated as of July 1, 2001 by and between the Company
and Robert K. Hynes. Incorporated herein by reference to Exhibit
10.1 to the March 31, 2002 Form 10-Q.
10.14 Agreement dated as of February 1, 2004 by and between the
Company and Neil D. Arnold, filed herewith.
10.15 Agreement dated as of February 1, 2004 by and between the
Company and Stewart E. Tabin, filed herewith.
10.16 Agreement dated as of February 1, 2004 by and between the
Company and Neale X. Trangucci, filed herewith.
*14.1 Code of Ethics and Conduct of WHX Corporation.
*21.1 Subsidiaries of Registrant.
*23.1 Consent of PricewaterhouseCoopers LLP.
69
*23.2 Consent of PricewaterhouseCoopers LLP.
*31.1 Certification by Principal Executive Officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*31.2 Certification by Principal Financial Officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*32.1 Certification by Principal Executive Officer and Principal
Financial Officer pursuant to Rule 13a-14(b) or 15d-14(b) of
the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*99.3 Financial Statements of Wheeling-Pittsburgh Corporation and
Subsidiaries - Incorporated by Reference Hereto.
(b) Financial Statements and Schedules:
1. Audited Financial Statements of WHX Corporation (Parent Only).
2. Audited Financial Statements of Wheeling-Pittsburgh Corporation and
Subsidiaries - Incorporated by reference to the Consolidated Financial
Statements of Wheeling-Pittsburgh Corporation included as part of its
Annual Report on Form 10-K for the year ended December 31, 2003, and as
attached hereto as Exhibit 99.3.
3. Schedule II - Valuation and Qualifying Accounts and Reserves
(c) Reports on Form 8-K Filed:
November 12, 2003
* - filed herewith.
70
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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, on April 13, 2004.
WHX CORPORATION
By: /s/ Neale X. Trangucci
---------------------------------
Name: Neale X. Trangucci
Title: Chief Executive Officer
POWER OF ATTORNEY
WHX Corporation and each of the undersigned do hereby appoint Neale X.
Trangucci, Neil D. Arnold and Stewart E. Tabin, and each of them severally, its
or his true and lawful attorney to execute on behalf of WHX Corporation and the
undersigned any and all amendments to this Annual Report on Form 10-K and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission; each of such attorneys
shall have the power to act hereunder with or without the other.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By: /s/ Neil D. Arnold April 13, 2004
------------------------------------------------------ -----------------
Neil D. Arnold, Chairman of the Board Date
By: /s/ Neale X. Trangucci April 13, 2004
------------------------------------------------------ -----------------
Neale X. Trangucci, Director and Chief Executive Date
Officer (Principal Executive Officer)
By: /s/ Stewart E. Tabin April 13, 2004
----------------------------------------------- -----------------
Stewart E. Tabin, Director and President Date
By: /s/ Robert K. Hynes April 13, 2004
----------------------------------------------- -----------------
Robert K. Hynes, Chief Financial Officer Date
(Principal Accounting Officer)
By: /s/ Robert A. Davidow April 13, 2004
----------------------------------------------- -----------------
Robert A. Davidow, Director Date
By: /s/ William Goldsmith April 13, 2004
----------------------------------------------- -----------------
William Goldsmith, Director Date
By: /s/ Louis Klein Jr. April 13, 2004
----------------------------------------------- -----------------
Louis Klein Jr., Director Date
By: /s/ Howard Mileaf April 13, 2004
----------------------------------------------- -----------------
Howard Mileaf, Director Date
By: /s/ Marvin L. Olshan April 13, 2004
----------------------------------------------- -----------------
Marvin L. Olshan, Director Date
By: /s/ Garen W. Smith April 13, 2004
----------------------------------------------- -----------------
Garen W. Smith, Director Date
By: /s/ Raymond S. Troubh April 13, 2004
----------------------------------------------- -----------------
Raymond S. Troubh, Director Date
71
Report of Independent Auditors on Financial Statement Schedules
To the Board of Directors
of WHX Corporation:
Our audits of the consolidated financial statements referred to in our report
dated April 13, 2004 appearing in the 2003 Annual Report to Shareholders of WHX
Corporation (which report and consolidated financial statements are included in
Item 8 of this Form 10-K) also included an audit of the financial statement
schedules listed in Item 15(b)(1) and Item 15(b)(3) of this Form 10-K. In our
opinion, the financial statement schedules present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
April 13, 2004
F-1
WHX CORPORATION (PARENT ONLY)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
---------------------------------------
2003 2002 2001
--------- --------- ---------
(IN THOUSANDS)
COST AND EXPENSES:
Precious metals - LIFO liquidation (gain)/loss $ (3,024) $ -- $ 503
Precious metals - lower of cost or market reserve 535 -- 2,664
Depreciation 1,050 1,072 1,072
Management fee income - continuing operations -- (750) (750)
Management fee income - discontinued operations -- (146) (250)
Pension expense 5,113 7,446 4,461
Pension - Curtailment and special benefits 48,101 -- --
Administrative and general expense 10,213 9,781 11,930
--------- --------- ---------
Subtotal - expenses 61,988 17,403 19,630
--------- --------- ---------
Interest expense 11,276 16,976 30,468
Gain on sale of interest in Wheeling Downs -- -- 88,517
Gain on sale of discontinued operations - net of tax -- 11,861 --
Equity in earnings of discontinued operations -- 10,601 5,416
Equity in earnings of subsidiaries (99,060) (87,978) 653
Gain on disposition of WPC 534 -- --
Gain on early retirement of debt 2,999 42,491 19,011
Other income (expense) - net 3,789 3,293 5,358
--------- --------- ---------
INCOME (LOSS) BEFORE TAXES (165,002) (54,111) 68,857
Tax provision (benefit) 4,206 (20,577) (32,264)
--------- --------- ---------
Net income (loss) (169,208) (33,534) 101,121
Dividend requirement for preferred stock 19,424 19,224 19,329
--------- --------- ---------
Net income (loss) applicable to common stock $(188,632) $ (52,758) $ 81,792
========= ========= =========
SEE NOTES TO PARENT ONLY FINANCIAL STATEMENTS
F-2
WHX CORPORATION (PARENT ONLY)
CONSOLIDATED BALANCE SHEETS DECEMBER 31,
------------------------
2003 2002
--------- ---------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 32,153 $ 1,643
Short term investments -- 205,275
Receivables 17,171 659
Inventories -- 21,999
Due from Unimast - current -- 3,204
Other current assets 21,223 2,873
--------- ---------
Total current assets 70,547 235,653
Investment in and advances to subsidiaries - net 119,830 193,103
Plant and equipment, at cost less
accumulated depreciation and amortization 5,822 7,302
Intangibles 752 40,270
Prepaid pension asset -- 25,848
Subordinated Note - Handy & Harman 3,577 --
Deferred charges and other assets 4,149 5,172
Deferred income taxes -- 31,449
--------- ---------
$ 204,677 $ 538,797
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 5,291 $ 5,637
Short-term debt -- 107,858
Deferred income taxes - current -- 7,209
--------- ---------
Total current liabilities 5,291 120,704
Long-term debt 92,820 110,504
Accrued pension liability 27,367 --
Additional minimum pension liability 20,314 93,728
--------- ---------
145,792 324,936
--------- ---------
Commitments and contingencies
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: 5,486 and 5,406 shares 55 54
Accumulated other comprehensive loss (21,642) (35,775)
Additional paid-in capital 556,206 556,009
Unearned compensation - restricted stock awards (99) --
Accumulated deficit (476,187) (306,979)
--------- ---------
58,885 213,861
--------- ---------
$ 204,677 $ 538,797
========= =========
SEE NOTES TO PARENT ONLY FINANCIAL STATEMENTS
F-3
WHX CORPORATION (PARENT ONLY)
CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
2003 2002 2001
--------- --------- ---------
(IN THOUSANDS)
Cash Flows From Operating Activities
Net income (loss) $(169,208) $ (33,534) $ 101,121
Non cash income and expenses
Depreciation and amortization 2,001 2,724 4,174
Income taxes 5,530 (9,901) (26,324)
Equity in (earnings)/loss of subsidiaries - continuing 99,060 87,778 (653)
Equity in earnings of subsidiaries - discontinued -- (10,601) (4,833)
Gain on sale of discontinued operations -- (18,747) --
Gain on sale of interest in Wheeling-Downs -- (88,517)
Gain on disposition of WPC (534) -- --
Loss on sale of fixed assets 32 -- --
Pension expense 53,215 7,446 4,460
Gain on early retirement of debt (2,999) (42,491) (19,011)
Decrease/(increase) in working capital elements
Receivables - including affiliated companies (21,571) (12,131) 2,245
Receivables - Unimast -- 8,534 5,941
Inventories 21,999 -- 22,992
Other current assets 595 (1,799) 153
Other current liabilities (352) (2,703) 22,449
Short term investments - trading 205,275 39,608 (175,565)
Investment account borrowings (107,857) (3,089) 110,946
Other items (net) 67 (3,943) (6,521)
--------- --------- ---------
Net cash (used)/provided by operating activities 85,253 7,151 (46,943)
--------- --------- ---------
Cash Flows from Investing Activities
Note receivable - WPC -- -- (30,453)
Release of restricted cash - DIP -- -- 33,000
Receipts from/(advances to) WPC (19,500) 1,250 (8,369)
Purchase of Aircraft for resale (19,255) -- --
Purchase of fixed asset (35) (12) --
Settlement of Intercompany balances - WPC -- -- (32,000)
Dividend from affiliated companies 2,713 -- 2,800
Proceeds from sale of fixed assets 432 -- --
Proceeds from sale of discontinued operations -- 84,869 --
Proceeds from sale of interest in Wheeling-Downs -- -- 105,000
Contribution to Handy & Harman (8,000) (5,000) (6,300)
Loan to Unimast -- -- (48,381)
Unimast loan repayment -- -- 48,381
--------- --------- ---------
Net cash provided/(used) by investing activities (43,645) 81,107 63,678
--------- --------- ---------
Cash flows from financing activities
Cash paid on extinguishment of debt (14,302) (87,612) (15,906)
Due from Unimast 3,204 -- --
--------- --------- ---------
Net cash used by financing activities (11,098) (87,612) (15,906)
--------- --------- ---------
Increase/(Decrease) in cash and cash equivalents 30,510 646 829
Cash and cash equivalents at beginning of period 1,643 997 168
--------- --------- ---------
Cash and cash equivalents at end of period $ 32,153 $ 1,643 $ 997
========= ========= =========
SEE NOTES TO PARENT ONLY FINANCIAL STATEMENTS
F-4
NOTES TO WHX PARENT ONLY FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The parent only financial statements include the accounts of all subsidiary
companies accounted for under the equity method of accounting. On November 16,
2000, Wheeling-Pittsburgh Corporation ("WPC"), a wholly owned subsidiary of WHX
Corporation ("WHX"), and six of its subsidiaries ("the WPC Group") filed
petitions seeking reorganization under Chapter 11 of Title 11 of the United
States Bankruptcy Code. (See Note 3 to the WHX parent only financial
statements). As a result of the Bankruptcy Filing, the accompanying parent only
statements of operations and statements of cash flows exclude the equity loss of
WPC for the periods after November 16, 2000.
The WHX parent company consists of WHX, WHX Aviation, WHX Metals, and
Wheeling-Pittsburgh Capital Corporation. WHX is a holding company that has been
structured to invest in and manage a diverse group of businesses. Its subsidiary
company is Handy & Harman, a diversified manufacturing company whose strategic
business units encompass three segments: precious metal, wire & tubing, and
engineered materials. On December 31, 2003 Handy & Harman acquired the
outstanding common stock of Canfield Metal Coatings from WHX in exchange for a
subordinated note. 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 (up through August 1,
2003) consisted of WPC and six of its subsidiaries including WPSC, a vertically
integrated manufacturer of value-added and flat rolled steel products. 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."
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These WHX parent only financial
statements should be read in conjunction with the Company's audited consolidated
financial statements contained in this Form 10-K for the year ended December 31,
2003.
OPERATING STATUS
The WHX 10 1/2% Senior Notes in the amount of $92.8 million are due on
April 15, 2005. It is the Company's intention to refinance this obligation prior
to its scheduled maturity; however there can be no assurance that such
refinancing will be obtained. The Company's access to capital markets in the
future to refinance such indebtedness may be limited. If the Company were unable
to refinance this obligation, it would have a material adverse impact on the
liquidity, financial position and capital resources of WHX and would impact the
Company's ability to continue as a going concern. The financial statements do
not reflect any adjustments related to this matter.
The new H&H financing agreements restrict cash payments to WHX. The ability
of WHX to liquidate liabilities arising in the ordinary course of business
through December 31, 2004 contemplates the sale of assets held at the parent
company level, which management intends to do as necessary.
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. In the third
quarter, the Company recognized a pre-tax gain on the sale of approximately
$18.6 million. The gain on sale is net of closing costs, transaction fees,
employee related payments, and other costs and expenses. 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.
As a result of the sale, the WHX parent only financial statements and
related notes for the periods presented herein reflect Unimast as a discontinued
operation.
Included in the WHX Corporation (parent only) balance sheet is $3,204,000
in 2002 of notes receivable from Unimast due to WHX. These amounts earned
interest at a variable rate and matured March 2003. Interest remitted by Unimast
to WHX amounted to $30,000, $163,000, and $463,000, in 2003, 2002 and 2001,
F-5
respectively. Principal payments amounting to $3,204,000, $2,000,000, and
$2,000,000 in 2003, 2002 and 2001, respectively, were remitted by Unimast to
WHX.
WHX received management fees from Unimast of $146,000 and $250,000 in 2002
and 2001, respectively.
NOTE 3 - WPC GROUP BANKRUPTCY
On November 16, 2000, the WPC Group filed petitions for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Ohio. As a result, subsequent to the commencement of the
Bankruptcy Filing, the WPC Group sought and obtained several orders from the
Bankruptcy Court that enabled the WPC Group to continue business operations as
debtors-in-possession. The Plan of Reorganization ("POR") was confirmed by the
Bankruptcy Court on June 18, 2003 and was consummated on August 1, 2003.
Pursuant to the terms of the POR, among other things, the WPC Group ceased to be
a subsidiary of WHX effective August 1, 2003, and from that date forward, has
been an independent company. See below for additional information regarding the
Bankruptcy Filing and the POR.
On November 17, 2000, the Bankruptcy Court granted the WPC Group's motion
to approve a $290.0 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 ("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 $35.0 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 $255.0 million. On January 2, 2002, the WPC
Group requested and received a reduction in the revolving loans, swing loans and
accommodations to a maximum aggregate amount of up to $175.0 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
accommodations to a maximum aggregate of $160.0 million and to make certain
other related changes to the agreement. In connection with the Bankruptcy
Filing, WHX had guaranteed $30.0 million of the term loan portion of the DIP
Credit Agreement ("Term Loan") and deposited in a pledged asset account $33.0
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 $30.0 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 $30.0 million of the Term Loan described above
was terminated and the $33.0 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. The DIP Credit Agreement was terminated and repaid
upon the consummation of the POR (see below). As discussed below, the WHX
participation interest was forgiven by WHX in connection with the consummation
of the POR.
WPC borrowings outstanding under the DIP Credit Agreement for revolving
loans totaled $137.2 million and $135.5 million at July 31, 2003 and December
31, 2002, respectively. Term Loans under the DIP Credit Agreement totaled $35.7
million and $35.2 million at July 31, 2003 and December 31, 2002 respectively.
Letters of credit outstanding under the facility totaled $2.8 million at July
31, 2003. At July 31, 2003, net availability under the DIP Credit Agreement was
$2.4 million. As a result of the consummation of the POR, the DIP Credit
Agreement was repaid (except for the WHX participation described below).
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 owned a
$32.0 million participation interest in the Term Loan discussed above and held
other claims against WPC and WPSC totaling approximately $7.1 million, all of
which were forgiven in connection with the consummation of the POR. 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 July 31, 2003, the WPC Group
incurred cumulative net losses of $348.6 million. Pursuant to the terms of the
POR, WHX agreed to contribute $20.0 million to the WPC Group (see discussion
below pertaining to WHX Contributions). As a result of the Company's obligation
to fund $20.0 million to WPC Group, the Company recorded a $20.0 million charge
as Equity in loss of WPC as of December 31, 2002. All conditions to the WHX
Contributions were satisfied effective upon consummation of the POR, and on
August 1, 2003, the WHX Contributions were made.
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.
F-6
The Settlement Agreement provided, in part, for (1) the payment by WHX to
WPC of $32.0 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
Canfield Metal Coatings Corporation ("CMCC") 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 CMCC.); (4) the termination of
the Tax Sharing Agreements between WHX and WPC; (5) WHX's delivery of 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 (the "WHX 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 CMCC, all occurred effective May 29, 2001. The acquisition of certain
assets of CMCC closed on June 29, 2001. The CMCC 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 provide WPSC (1) up to $5.0
million of loans and $5.0 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 $2.0 million of loans (for an
aggregate of $7.0 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 loans were not made), and (3) a $25.0 million contribution to a new
WPSC defined benefit pension plan contingent upon, among other things, a
confirmed WPSC Plan of Reorganization (item 3 was superceded by the WHX
Contributions described below). Through July 31, 2003, WHX had advanced $5.0
million of the loans and up to $5.5 million of financing. At July 31, 2003, the
outstanding balance of these advances was $5.0 million plus interest of $0.5
million, and $1.6 million, respectively. These advances, totaling $7.1 million,
were forgiven in connection with the consummation of the POR.
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 were granted super-priority claim status in WPSC's
Chapter 11 case and are collateralized 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 provided, among other things, that the Company could sell,
transfer or dispose of the stock of WPC free from the automatic stay imposed
under the Bankruptcy Code, and under specified circumstances, required WPC to
support certain changes to the WHX Plan. Additionally, the October Order
approved the terms of the Modified Labor Agreement ("MLA") by and among WPC,
WPSC and the USWA. WHX was not a party to the MLA. The MLA modified the then
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 was part of a comprehensive support arrangement that also involved
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 that 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.
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 $250.0 million federal loan guarantee. An affiliate of RBC
agreed to underwrite the loan if the guaranty was 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 was subject to the satisfaction of various
conditions on or before June 30, 2003, subsequently extended to August 15, 2003,
including, without limitation, resolution of the treatment of the WHX Pension
Plan that was 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. All such conditions were satisfied on or before August
1, 2003.
F-7
The amended RBC application contained a business plan that assumed a
confirmed Chapter 11 plan of reorganization for the WPC Group. As part of the
POR, the Company had conditionally agreed to make certain contributions (the
"WHX Contributions") to the reorganized company. Under the WHX Contributions,
the Company forgave the repayment of its claims against the WPC Group of
approximately $39.0 million and, additionally, contributed to the reorganized
company $20.0 million of cash, for which the Company received a note in the
amount of $10.0 million. The note was fully reserved upon receipt. (Such reserve
is continually evaluated and adjustments would be made to the reserve in the
event circumstances warrant.) The loan with the RBC closed on August 1, 2003 and
all conditions to the guaranty by the ESLGB were satisfied and the guaranty was
granted. The proceeds of the RBC Loan, among other things, were used to repay
the DIP creditors (except for WHX). In addition all conditions to the WHX
Contributions were satisfied and the WHX Contributions were made.
On June 18, 2003 the POR was confirmed by the Bankruptcy Court and on
August 1, 2003 it was consummated. Effective on August 1, 2003 the WPC Group
ceased to be a subsidiary of WHX and from that date forward has been an
independent company.
On March 6, 2003, the 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 Plan. WHX filed an answer to this complaint
on March 27, 2003, contesting the PBGC's action. On July 24, 2003, the Company
entered into an agreement among the PBGC, Wheeling-Pittsburgh Corporation
("WPC"), Wheeling-Pittsburgh Steel Corporation ("WPSC"), and the United
Steelworkers of America, AFL-CIO-CLC ("USWA") in settlement of matters relating
to the PBGC v. WHX CORPORATION, Civil Action No. 03-CV-1553, in the United
States District Court for the Southern District of New York ("Termination
Litigation"), in which the PBGC was seeking to terminate the WHX Plan. Under the
settlement, among other things, WHX agreed (a) that the WHX Plan, as it is
currently constituted, is a single employer pension plan, (b) to contribute
funds to the WHX Plan equal to moneys spent (if any) by WHX or its affiliates to
purchase WHX 10.5% Senior Notes ("Senior Notes") in future open market
transactions, and (c) to grant to the PBGC a pari passu security interest of up
to $50.0 million in the event WHX obtains any future financing on a secured
basis or provides any security or collateral for the Senior Notes.
Also under the settlement, all parties agreed that as of the effective date
of the POR, (a) no shutdowns had occurred at any WPC Group facility, (b) no
member of the WPC Group is a participating employer under the WHX Plan, (c)
continuous service for WPC Group employees was broken, (d) no WPC Group
employees will become entitled to "Rule of 65" or "70/80" Retirement Benefits
(collectively, "Shutdown Benefits") by reason of events occurring after the
effective date of the POR, and (e) the WHX Plan would provide for a limited
early retirement option to allow up to 650 WPSC USWA-represented employees the
right to receive retirement benefits based on the employee's years of service as
of July 31, 2003 with a monthly benefit equal to $40 multiplied by the
employee's years of service.
Finally, under the settlement, the PBGC agreed (a) that, after the
effective date of the POR, if it terminates the WHX Plan at least one day prior
to a WPC Group facility shutdown, WHX shall be released from any additional
liability to PBGC resulting from the shutdown, (b) to withdraw its claims in the
WPC Bankruptcy Proceedings; and (c) to dismiss the Termination Litigation.
A pre-tax, non-cash charge for the cost of early retirement incentives of
$11.5 million was recognized in the third quarter of 2003 as a special
termination benefit in accordance with Statement of Financial Accounting
Standards No. 88, "Employers' Accounting for Settlement and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits" ("SFAS 88"). Also
pursuant to SFAS 88, a curtailment occurred as a result of the break in service
for WPC Group employees that resulted in a pre-tax, non-cash charge of $36.6
million in the third quarter of 2003.
For WHX Plan funding purposes, the impact of the changes will not be
recognized until the next actuarial valuation which occurs as of January 1,
2004. The funding requirements will depend on many factors including those
identified above as well as future investment returns on WHX Plan assets. Based
on preliminary estimates, using the current statutory discount rate, WHX will be
required to make a contribution to the WHX Pension Plan of approximately $6.0
million in 2004.
The agreement with the PBGC also contains the provision that WHX will not
contest a future action by the PBGC to terminate the WHX Plan in connection with
a future WPC Group facility shutdown. In the event that such a plan termination
occurs, the PBGC has agreed to release WHX from any claims relating to the
shutdown. However, there may be PBGC claims related to unfunded liabilities that
may exist as a result of a termination of the WHX Plan.
F-8
In connection with past collective bargaining agreements by and between the
WPC Group and the USWA, the WPC Group was 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 had previously and separately
agreed to be contingently liable for a portion of the OPEB Obligations. WHX's
contingent obligation would have been triggered in the event that the WPC Group
failed to satisfy its OPEB Obligations. WHX's contingent obligation was 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 was 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. As a result of the consummation of the
POR, WHX's contingent liability for the OPEB Obligation was eliminated.
As a result of the consummation of the POR and the related WHX
Contributions, the remaining balance in the loss in excess of investment account
of $0.5 million was reversed into income in the third quarter of 2003.
Note 4 - SHORT TERM INVESTMENTS
The composition of the Company's short-term investments are as follows:
YEAR ENDED DECEMBER 31,
-------------------------
2003 2002
-------- --------
(IN THOUSANDS)
Trading Securities:
U.S. Treasury securities $ -- $200,625
Equities -- 4,650
-------- --------
$ -- $205,275
======== ========
These investments are subject to price volatility associated with any
interest-bearing instrument. Fluctuations in general interest rates affect the
value of these investments.
Net unrealized holding losses on trading securities held at period end and
included in other income for 2002 amounted to $4.9 million. At December 31,
2002, the Company had short-term margin borrowings of $107.9 million related to
the short-term investments.
NOTE 5 - INVENTORIES
YEAR ENDED DECEMBER 31
-----------------------------
2003 2002
-------- --------
(DOLLARS IN THOUSANDS)
Precious metals $ -- $ 23,046
LIFO reserve -- (1,047)
-------- --------
$ -- $ 21,999
======== ========
Inventories, which were leased to Handy & Harman (See Note 9 to the notes
of the parent only financial statements), consisted of 9,117 ounces of gold and
4,155,000 ounces of silver at December 31, 2002.
During 2003 and 2001, certain inventory quantities were reduced, resulting
in liquidations of LIFO inventories, the effect of which increased income by
approximately $3.0 million in 2003 and decreased income by $0.5 million in 2001.
A non-cash charge resulting from the lower of cost or market adjustment to
precious metal inventories decreased income by $0.5 million and $2.7 million in
2003 and 2001, respectively.
In 2001, $3,000,000 of gold, at fair market value, was contributed to Handy
& Harman.
F-9
Supplemental inventory information:
YEAR ENDED DECEMBER 31
--------------------------------
2003 2002
------------ --------------
(IN THOUSANDS, EXCEPT PER OUNCE)
Precious metals stated at LIFO cost $ -- $ 21,999
Market value per ounce:
Silver $ 5.960 $ 4.790
Gold $ 416.70 $ 344.80
NOTE 6 - INVESTMENT IN AND ADVANCES TO SUBSIDIARIES - NET
The following table details the investments in associated companies, accounted
for under the equity method of accounting.
YEAR ENDED DECEMBER 31,
--------- ---------
2003 2002
--------- ---------
(IN THOUSANDS)
Investment in:
Handy & Harman $ 111,195 $ 206,117
CMCC -- 3,244
--------- ---------
111,195 209,361
--------- ---------
Advances to/(Due to):
Handy & Harman 8,635 1,175
CMCC -- 3,822
--------- ---------
8,635 4,997
--------- ---------
WPC Group - DIP Agreement -- 31,959
WPC Group - Other -- 7,453
--------- ---------
-- 39,412
--------- ---------
Loss in excess of investment in WPC Group -- (60,667)
--------- ---------
Investment in and advances to subsidiaries - net $ 119,830 $ 193,103
========= =========
The Handy & Harman loan agreement contains provisions restricting cash
payments to WHX. The agreement allows the payment of management fees, income
taxes pursuant to tax sharing agreements, and certain other expenses. In
addition dividends may be paid under certain conditions. At December 31, 2003
the net assets of H&H amounted to $111.1 million, all of which was restricted as
to the payment of dividends to WHX.
On December 31, 2003 Handy & Harman acquired 100% of the stock of CMCC from
WHX Corporation for $3.6 million representing the book value of net assets
acquired. Payment was made to WHX in the form of a subordinated note.
NOTE 7 - LONG-TERM DEBT
YEAR ENDED DECEMBER 31
----------------------------
2003 2002
-------- --------
(IN THOUSANDS)
Senior Notes due 2005, 10 1/2% $ 92,820 $110,504
======== ========
The fair value of long-term debt at December 31, 2003 and 2002 was $81,682
and $87,851, respectively. Fair value of long-term debt is estimated based on
trading in the public market.
A summary of the financial agreement at December 31, 2003 follows:
F-10
WHX CORPORATION 10 1/2% SENIOR NOTES DUE 2005:
On April 7, 1998, WHX issued $350.0 million principal amount of 10 1/2%
Senior Notes ("Notes"), which replaced privately placed notes of the same
amount. Interest on the Notes is payable semi-annually on April 15 and October
15 of each year, commencing October 15, 1998. The Notes mature on April 15,
2005.
The Notes are redeemable at the option of WHX, in whole or in part, on or
after April 15, 2002 at specified prices, plus accrued interest and liquidated
damages, if any, thereon to the date of redemption.
Upon the occurrence of a Change of Control (as defined), the Company is
required to make an offer to repurchase all or any part of each holder's Notes
at 101% of the principal amount thereof, plus accrued interest and liquidated
damages, if any, thereon to the date of repurchase.
The Notes are unsecured obligations of WHX, ranking senior in right of
payment to all existing and future subordinated indebtedness of WHX, and pari
passu with all existing and future senior unsecured indebtedness of WHX.
The Notes indenture, dated as of April 7, 1998 ("Indenture"), contains
certain covenants, including, but not limited to, covenants with respect to: (i)
limitations on indebtedness and preferred stock; (ii) limitations on restricted
payments; (iii) limitations on transactions with affiliates; (iv) limitations on
liens; (v) limitations on sales of assets; (vi) limitations on dividends and
other payment restrictions affecting subsidiaries; and (vii) restrictions on
consolidations, mergers and sales of assets.
On October 4, 2000, WHX successfully completed a solicitation of consents
from holders of the Notes to amend certain covenants and other provisions of the
Indenture. The amendments are set forth in the Supplemental Indenture and
provide, among other things, for amendments to certain covenants which restrict
the Company's ability to make restricted payments, incur additional
indebtedness, make permitted investments or utilize proceeds from asset sales.
The Supplemental Indenture prohibited the payment of dividends on the Company's
preferred stock until October 1, 2002, at the earliest, and thereafter only in
the event that the Company satisfied certain conditions set forth in the
Indenture, as amended by the Supplemental Indenture. Such conditions were not
satisfied as of December 31, 2003. In connection with the solicitation WHX made
a payment equal to 2% of the principal amount of the Notes ($20 in cash for each
$1,000 principal amount of Notes) to each holder of Notes whose consent was
received and accepted prior to the expiration date. Such payments amounted to
$5.5 million and will be amortized to interest expense over the remaining term
of the Notes.
During 2001, the Company purchased and retired $36.4 million aggregate
principal amount of the Notes in the open market resulting in a gain of $19.0
million.
During 2002, the Company purchased and retired $134.6 million aggregate
principal amount of the Notes in the open market resulting in a gain of $42.5
million.
During 2003, the Company purchased and retired $17.7 million aggregate
principal amount of the Notes in the open market resulting in a gain of $3.0
million.
INTEREST COST
Aggregate interest costs on debt during the three years ended December 31 is as
follows:
2003 2002 2001
--------- ------- -------
(IN THOUSANDS)
Interest expense $11,276 $16,315 $30,468
======= ======= =======
Interest paid $10,640 $18,236 $27,644
======= ======= =======
NOTE 8 - STOCKHOLDERS' EQUITY
The authorized capital stock of WHX consists of 60,000,000 shares of Common
Stock, $.01 par value, of which 5,485,856 and 5,405,856 shares were outstanding
as of December 31, 2003 and 2002, respectively, and 10,000,000 shares of
Preferred Stock, $.10 par value, of which 2,573,926 shares of Series A
Convertible Preferred Stock and 2,949,000 shares of Series B Convertible
Preferred Stock were outstanding as of December 31, 2003 and 2002.
F-11
SERIES A CONVERTIBLE PREFERRED STOCK AND SERIES B CONVERTIBLE PREFERRED STOCK
In July 1993, the Company issued 3,000,000 shares of Series A Convertible
Preferred Stock for net proceeds of $145.0 million. On October 4, 2000, pursuant
to a solicitation of consents from holders of its 10 1/2% Senior Notes, certain
covenants and other provisions of the indebtedness were amended. The
Supplemental Indenture prohibited the payment of dividends on the Company's
preferred stock until October 1, 2002, at the earliest, and thereafter only in
the event that the Company satisfied certain conditions set forth in the
Indenture, as amended by the Supplemental Indenture. Such conditions were not
satisfied as of December 31, 2003. Dividends on the shares of the Series A
Convertible Preferred Stock are cumulative and are payable quarterly in arrears
on January 1, April 1, July 1 and October 1 of each year, in an amount equal to
$3.25 per share per annum.
Each share of the Series A Convertible Preferred Stock is convertible at
the option of the holder thereof at any time into shares of Common Stock of the
Company, par value $.01 per share, at a conversion rate of 1.0562 shares of
Common Stock for each share of Series A Convertible Preferred Stock, subject to
adjustment under certain conditions.
The Series A Convertible Preferred Stock is redeemable at the option of the
Company, in whole or in part, for cash, initially at $52.275 per share and
thereafter at prices declining ratably to $50 per share on and after July 1,
2003, plus, in each case, accrued and unpaid dividends to the redemption date.
The Series A Convertible Preferred Stock is not entitled to the benefit of any
sinking fund. During 2002 and 2001, 40,300 and 293,599 shares respectively were
converted into Common Stock. There were no conversions in 2003.
The Company issued 3,500,000 shares of Series B Convertible Preferred Stock
in September 1994 for net proceeds of $169.8 million. On October 4, 2000,
pursuant to a solicitation of consents from holders of its 10 1/2% Senior Notes,
certain covenants and other provisions of the indebtedness were amended. The
Supplemental Indenture prohibited the payment of dividends on the Company's
preferred stock until October 1, 2002, at the earliest, and thereafter only in
the event that the Company satisfied certain conditions set forth in the
Indenture, as amended by the Supplemental Indenture. Such conditions were not
satisfied as of December 31, 2003. Dividends on the shares of the Series B
Convertible Preferred Stock are cumulative and payable quarterly in arrears on
January 1, April 1, July 1 and October 1 of each year, in an amount equal to
$3.75 per share per annum.
Each share of the Series B Convertible Preferred Stock is convertible at
the option of the holder thereof at any time into shares of Common Stock of the
Company, par value $.01 per share, at a conversion rate of 0.8170 share of
Common Stock for each share of Series B Convertible Preferred Stock, subject to
adjustment under certain conditions.
The Series B Convertible Preferred Stock is redeemable at the option of the
Company, in whole or in part, for cash, initially at $52.625 per share and
thereafter at prices declining ratably to $50 per share on and after October 1,
2004, plus, in each case, accrued and unpaid dividends to the redemption date.
The Series B Convertible Preferred Stock is not entitled to the benefit of any
sinking fund. During 2002 and 2001, 7,700 and 18,400 shares, respectively were
converted into Common Stock. There were no conversions in 2003.
At December 31, 2003, dividends in arrears to Series A and Series B
Convertible Preferred Shareholders were $27.2 million and $35.9 million,
respectively. Presently, management believes that it is not likely that the
Company will be able to pay these dividends in the foreseeable future.
NOTE 9 - RELATED PARTY TRANSACTIONS
The former Chairman of the Board of the Company is the president and sole
shareholder of WPN Corp. ("WPN"). Pursuant to a management agreement as amended,
and approved by a majority of the non-management directors of the Company, WPN
provided certain financial, management advisory and consulting services to the
Company. Such services included, among others, identification, evaluation and
negotiation of acquisitions, responsibility for financing matters for the
Company and its subsidiaries, review of annual and quarterly budgets,
supervision and administration, as appropriate, of all the Company's accounting
and financial functions and review and supervision of reporting obligations
under Federal and state securities laws. In exchange for such services, WPN
received a monthly fee of $520,833 in 2002 and 2001. During 2003, WPN received a
monthly fee of $520,833 through October and $400,000 per month thereafter. In
January 2004 the Company announced, among other things, the retirement of the
Chairman of the Board. In connection with this announcement, effective February
1, 2004 the management agreement between WHX and WPN was terminated.
On August 4, 1997 the compensation committee of the Board of Directors
granted an option to purchase 333,333 shares of Common Stock to WPN Corp, at the
then market price per share, subject to stockholder approval. The Board of
Directors approved such grant on September 25, 1997, and the stockholders
approved it on December 1, 1997 (measurement date). In January 2004 WPN Corp.
elected to cancel the options to purchase 333,333 shares of common stock.
F-12
The WPC Group is included in the Company's consolidated federal income tax
return. WHX and the WPC Group had entered into a tax sharing agreement, dated
July 26, 1994, which provided that the WPC Group would be paid for any reduction
in the combined consolidated federal income tax liability resulting from the
utilization or deemed utilization of deductions, losses and credits, whether
from current or prior years, which are attributable to WPC. The Tax Sharing
Agreement was terminated in 2001 as part of the Settlement Agreement. As a
result, WHX was able to recognize benefits from WPC's net operating losses (See
Note 7 to the consolidated financial statements).
As part of the Settlement Agreement, WHX paid $32.0 million to the WPC
Group in 2001. As a result of the Settlement Agreement, among other things, all
intercompany receivables and liabilities were settled. In addition WHX acquired
the net assets of CMCC from the WPC Group.
The WPC Group participates in the WHX defined benefit pension plan. As a
result of the Settlement Agreement, WHX could not charge any pension expense to
the WPC Group with respect to the WHX Pension Plan through December 31, 2002. As
a result, WHX incurred non-cash pension expense of approximately $52.9 million
(including curtailment and special termination benefits), $14.0 million and
$15.0 million for the WPC Group in 2003, 2002 and 2001, respectively. (See Note
6 to the consolidated financial statements).
On June 1, 2001, WHX purchased from Citibank a $30.5 million participation
in the DIP Credit Agreement for the WPC Group for which WHX received interest at
a rate of 13% per annum, paid monthly and an additional 3.0% per annum payment
in-kind.
As a result of the October Order, WHX provided the WPC Group with $5.0
million in financing in 2001. In addition, WHX provided up to $5.0 million in
liquidity support to the WPC Group.
On October 9, 2000 and November 14, 2000, WHX transferred precious metal to
WPC with a market value of $35.2 million and a tax basis of a significantly
lower amount. Such proceeds were applied to the WHX net liability due to WPC. In
connection with the precious metal transfer, WPC agreed to amend the provisions
of the tax sharing agreement relating to the utilization by WHX of WPC's net
operating losses in an amount equal to the tax gain realized on the sale of such
metals. WPC immediately sold the precious metals in the open market and received
proceeds of $35.2 million.
The parent company charged its wholly-owned subsidiary Handy & Harman a
management fee of $750,000 for 2002 and 2001. Unimast, now classified as a
discontinued operation, was charged a management fee of $146,000 through July
31, 2002 and $250,000 for the year ended December 31, 2001.
WHX received a management fee from Wheeling-Downs Racing Association (a 50%
owned joint venture) of $12,899,000 in 2001. In December 2001, the WHX Group
sold its 50% interest in Wheeling-Downs Racing Association.
Handy & Harman is included in WHX Corporation's consolidated tax return.
The Tax Sharing Agreement with Handy & Harman specifies funding requirements to
the parent company "as if" Handy & Harman continued to be an independent
corporation. Estimated income tax payments to the parent company from Handy &
Harman in 2003, 2002 and 2001 amounted to $0, $0 and $2,250,000, respectively.
Unimast was included in WHX Corporation's consolidated tax return, up to
its sale on July 31, 2002. The Tax Sharing Agreement with Unimast specifies
funding requirements to the parent company as pre-tax income multiplied by the
federal statutory rate. To the extent that this cash payment to the parent
company exceeds or is less than the requirement "as if" Unimast was an
independent corporation, a dividend or capital contribution is recorded by the
parent company. Income tax payments to the parent company from Unimast in 2002
and 2001 amounted to $6,225,000 and $3,228,000, respectively.
Included in the parent company only balance sheets is $3,204,000 in 2002 of
notes receivable from Unimast due to WHX. These amounts earned interest at a
variable rate and matured March 2003. Interest remitted by Unimast to WHX
amounted to $30,000, $163,000, and $463,000, in 2003, 2002 and 2001,
respectively. Principal payments amounting to $3,204,000, $2,000,000, and
$2,000,000 in 2003, 2002 and 2001, respectively, were remitted by Unimast to
WHX.
On July 31, 1998, H&H transferred 97,000 ounces of gold and 13,000,000
ounces of silver to WHX by way of an in-kind dividend having an aggregate fair
value, net of deferred tax liabilities, of $62,750,000. WHX in turn made an
in-kind contribution to WHX Metals Corporation, a separate wholly owned
subsidiary of WHX. H&H will lease from WHX Metals Corporation amounts of gold
and silver as required for its operating needs. H&H will pay to WHX Metals
Corporation interest on the metal ounces leased. At December 31, 2002 and
December 31, 2001, H&H was leasing 9,117 ounces of gold. At December 31, 2002
and December 31, 2001, Handy & Harman was leasing 4,155,000 ounces of silver.
The rates for the leasing of gold and silver to H&H are 2.0% and 3.0% per annum,
respectively. Metal interest charged to H&H was $661,000 and, $753,000 for 2002
and 2001, respectively.
F-13
In 2003, WHX contributed $8,000,000 to H&H. In 2002, WHX contributed
$5,000,000 to Handy & Harman.
In 2001, WHX contributed $3,000,000 in gold, at fair market value,
and $3,300,000 in cash to H&H. Also in 2001, H&H paid a dividend to WHX
of $2,800,000.
In 2003 WHX advanced to H&H $12.3 million, representing anticipated
insurance proceeds due to H&H under WHX's property insurance policy. At December
31, 2003, $7.3 million of such payment is included in the parent only balance
sheet as an advance to H&H.
At December 31, 2003 H&H acquired the stock of Canfield Metal
Coating Corporation from WHX at book value in exchange for a subordinated note
in the amount of $3.6 million.
NOTE 10 - OTHER INCOME
YEAR ENDED DECEMBER 31,
2003 2002 2001
-------- -------- --------
(IN THOUSANDS)
Interest and investment income/(loss) $ 6,334 $ 5,115 $ (4,411)
Interest income - Handy & Harman -- 661 711
Wheeling-Downs management fee -- -- 12,899
WPN management fee (2,500) (2,500) (2,500)
Other, net (46) 17 (1,341)
-------- -------- --------
$ 3,788 $ 3,293 $ 5,358
======== ======== ========
NOTE 11 - GAIN ON SALE OF INTEREST IN WHEELING-DOWNS RACING ASSOCIATION, INC.
In December 2001, the WHX Group sold its 50% interest in Wheeling-Downs
Racing Association, Inc. for $105.0 million in cash, resulting in an $88.5
million pre-tax gain.
NOTE 12 - EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES
YEAR ENDED DECEMBER 31,
-------------------------------------------------
2003 2002 2001
--------- --------- ---------
(IN THOUSANDS)
Handy & Harman $(100,394) $ (70,474) $ (2,594)
CMCC 1,334 2,696 747
WPC Group -- (20,000) --
Wheeling-Downs -- -- 2,500
--------- --------- ---------
$ (99,060) $ (87,778) $ 653
========= ========= =========
NOTE 13 - MANAGEMENT FEE
For the years ended December 31, 2002 and 2001 WHX charged its subsidiary,
H&H, $0.8 million in each year as a management fee.
F-14
WHX Corporation
Schedule II - Valuation and Qualifying Accounts and Reserves
Balance at Charged to Additions/ Balance at
Beginning Costs and (Deductions) End of
Description of Period Expenses Describe of Period
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2003
Deducted from asset accounts:
Valuation allowance on foreign NOL's 5,350 460 5,810
Valuation allowance on federal NOL's - 31,694 31,694
Valuation allowacne on other net deferred tax assets - 3,096 3,096
---------------------------------------------------------------
5,350 35,250 - 40,600
---------------------------------------------------------------
Allowance for Doubtful Accounts 2,307 621 (1,925)(a) 1,003
---------------------------------------------------------------
Total 7,657 35,871 (1,925) 41,603
===============================================================
Year ended December 31, 2002
Valuation allowance on foreign NOL's 2,429 2,921 5,350
Allowance for Doubtful Accounts 1,563 1,798 (1,054)(a) 2,307
Year ended December 31, 2001
Valuation allowance on foreign NOL's 2,198 231 2,429
Allowance for Doubtful Accounts 1,189 767 (392)(a) 1,564
(a) Uncollectible accounts written off, net of recoveries
F-15