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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF X 1934
For the fiscal year ended December 31, 1999
OR
/ / TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 033-89746
WHEELING-PITTSBURGH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 55-0309927
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1134 Market Street 26003
Wheeling, WV (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: 304-234-2400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
9 1/4% Senior Notes due 2007 NA
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
---
The registrant meets the conditions set forth in General Instruction
I(1)(a) and (b) of Form 10-K and is therefore filing this Form with reduced
disclosure format.
Incorporation of documents by reference: None
PART I
ITEM 1. Business
Overview
Wheeling-Pittsburgh Corporation ("WPC") and together with its
subsidiaries, ( the "Company"), is a wholly owned subsidiary of WHX Corporation
("WHX"). Wheeling-Pittsburgh Steel Corporation ("WPSC"), a wholly owned
subsidiary of WPC, is the ninth largest domestic integrated steel manufacturer.
The Company is a vertically integrated manufacturer of value-added flat rolled
steel products. The Company sells a broad array of value-added products,
including cold rolled steel, tin and zinc-coated steels and fabricated steel
products. The Company's products are sold to steel service centers, converters,
processors, the construction industry, and the container and appliance
industries.
The Company believes that it is one of the lowest cost
domestic flat rolled steel producers. The Company's low cost structure is the
result of: (i) the restructuring of its work rules and staffing requirements
under its new five-year labor agreement which settled a ten-month strike in
1997; (ii) the strategic balance between its basic steel operations and its
finishing and fabricating facilities; and (iii) its efficient production of low
cost, high quality metallurgical coke.
The Company believes that its 1997 labor agreement is one of
the most flexible in the industry. The new work rule package affords the Company
substantially greater flexibility in reducing its overall workforce and
assigning and scheduling work, thereby reducing costs and increasing efficiency.
Furthermore, the Company has achieved pre-strike steel production levels with
approximately 850 fewer employees (a reduction of approximately 20% in its
hourly workforce).
The Company has structured its operations so that its hot
strip mill and downstream operations have greater capacity than do its raw steel
making operations. The Company therefore can purchase slabs and ship at greater
than 100% of its internal production capacity in periods of high demand, while
maintaining the ability to curtail such purchases and still operate its basic
steel facilities at or near capacity during periods of lower demand. The Company
believes this flexibility results in enhanced profitability throughout an
economic cycle. The Company also believes that it produces metallurgical coke at
a substantially lower cost than do other coke manufacturers because of its
proximity to high quality coal reserves and its efficient coke producing plant.
This reduces the Company's costs and, as coke demand remains high, allows the
Company to sell coke profitably in the spot and contract markets.
Business Strategy
The Company's business strategy includes the following
initiatives:
Improve Cost Structure. The Company continues to improve its
cost structure and enhance productivity through job eliminations (850 positions
were eliminated in 1997, approximately 20% of its pre- strike hourly workforce)
and capital expenditures, upgrading and modernizing its steelmaking facilities.
Expand Production of Value-Added Products. The Company will
continue to expand production of value-added products, principally through
growth of fabricated products, and its emphasis on joint ventures, such as
Wheeling-Nisshin, Inc. ("Wheeling-Nisshin") and Ohio Coatings Company ("OCC").
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The following table lists operating statistics for the Company
and the steel industry (as reported by the American Iron and Steel Institute)
for the five-year period ending December 31, 1999.
Year Ended December 31,
---------------------------------------------------------------------------
1999(2) 1998(1) 1997(1) 1996(1) 1995
---- ---- ---- ---- ----
(Tons in millions)
Company Raw Steel Production............... 2.44 2.45 .66 1.78 2.20
Capability .............. 2.40 2.40 2.40 2.40 2.40
Utilization.............. 102% 102% 90% 98.9% 92%
Shipments................ 2.4 2.2 .9 2.1 2.4
Industry Raw Steel Production(2) .......... 107.2 108.8 108.6 105.3 104.9
Capability .............. 128.1 125.3 121.4 116.1 112.4
Utilization ............. 84% 87% 89% 91% 93%
Shipments ............... 105.1 102.4 105.9 100.9 97.5
- ------------------------------------
(1) Results for the first half of 1998, 1997 and 1996 were
affected by a ten-month work stoppage at the Company's primary
steel-making facilities beginning October 1, 1996. The
utilization rate for the nine months prior to the work
stoppage was 98.9%. The utilization rate for the fourth
quarter of 1997 was 90%.
(2) Preliminary estimates regarding 1999.
-2-
Products and Product Mix
The table below reflects the historical product mix of the
Company's shipments, expressed as a percentage of tons shipped. Increases in the
percentage of higher value products have been realized during the 1990's as (i)
fabricated products operations were expanded and (ii) Wheeling-Nisshin's second
coating line increased its requirements of cold rolled coils from WPC. In
addition, the OCC joint venture should enable the Company to increase tin mill
product shipments in 2000 up to an additional 31,000 tons compared to 1999
levels. Historical Product Mix
Product Category:
Higher Value-Added Products:
Cold Rolled Products--Trade 10.6% 11.0% 5.6% 8.4% 7.9%
Cold Rolled Products--Wheeling-Nisshin 19.4 19.0 7.7 16.6 18.9
Coated Products 16.0 17.5 12.3 21.5 21.3
Tin Mill Products 9.8 7.1 3.3 7.5 7.1
Fabricated Products 15.4 15.6 39.0 17.9 14.9
----- ----- ----- ----- -----
Higher Value-Added Products as a Percentage
of Total Shipments 71.2 70.2 67.9 71.9 70.1
Hot Rolled Products 28.8 29.5 20.0 28.1 29.9
Semi-Finished -- 0.3 12.1 -- --
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
Total ===== ===== ===== ===== =====
Average Net Sales per Ton $ 446 $ 496 $ 576 $ 528 $ 532
(1) The allocation among product categories was affected by the
ten-month work stoppage.
Products produced by the Company are described below. These
products are sold directly to third party customers, and to Wheeling-Nisshin and
OCC pursuant to long-term supply agreements.
Cold Rolled Products. Cold rolled coils are manufactured from
hot rolled coils by employing a variety of processing techniques, including
pickling, cold reduction, annealing and temper rolling. Cold rolled processing
is designed to reduce the thickness and improve the shape, surface
characteristics and formability of the product. In its finished form, the
product may be sold to service centers and to a variety of end users such as
appliance or automotive manufacturers or further processed internally into
corrosion-resistant coated products including hot dipped galvanized,
electrogalvanized, or tin mill products. In recent years, the Company has
increased its cold rolled production to support increased sales to
Wheeling-Nisshin, which is labeled as a separate product category above.
Coated Products. The Company manufactures a number of
corrosion-resistant, zinc-coated products including hot dipped galvanized and
electrogalvanized sheets for resale to trade accounts. The coated products are
manufactured from a steel substrate of cold rolled or hot rolled pickled coils
by applying zinc to the surface of the material to enhance its corrosion
protection. The Company's trade sales of galvanized products are heavily
oriented to unexposed applications, principally in the appliance, construction,
service center and automotive markets. Typical industry applications include
auto underbody parts, culvert pipe, refrigerator backs and heating/air
conditioning ducts. The Company sells electrogalvanized products for application
in the appliance and construction markets.
Tin Mill Products. Tin mill products consist of blackplate and
tinplate. Blackplate is a cold rolled substrate (uncoated), the thickness of
which is less than .0142 inches and is utilized extensively in the
-3-
manufacture of pails, shelving and sold to OCC for the manufacture of tinplate
products. Tinplate is produced by the electro-deposition of tin to a blackplate
substrate and is utilized principally in the manufacture of food, beverage,
general line and aerosol containers. While the majority of the Company's sales
of these products is concentrated in container markets, the Company also markets
products for automotive applications, such as oil filters and gaskets. The
Company has phased out its existing tin mill facilities and produces all of its
tin coated products through OCC. WPSC expects that its participation in OCC will
enable it to expand WPSC's presence in the tin plate market. OCC's $69 million
tin coating mill, which commenced commercial operations in January 1997, has a
nominal annual capacity of 250,000 net tons. The Company has the right to supply
up to 230,000 tons of the substrate requirements of the joint venture through
the year 2012, subject to quality requirements and competitive pricing. The
Company will market all of the joint venture's product. Nittetsu markets the
product as a sales agent for the Company.
Hot Rolled Products. Hot rolled coils represent the least
processed of the Company's finished goods. Approximately 71% of the Company's
1999 production of hot rolled coils was further processed internally into
value-added finished products. The balance of the tonnage is sold as hot rolled
black or pickled (acid cleaned) coils to a variety of consumers such as
converters/processors, steel service centers and the appliance industries.
Fabricated Products. Fabricated products consist of cold
rolled or coated products further processed mainly via roll forming and sold in
the construction, agricultural, and highway products industries.
Construction Products. Construction products consist of
roll-formed sheets, which are utilized in sectors of the non-residential
building market such as commercial, institutional and manufacturing. They are
classified into three basic categories: roof deck; form deck; and composite
floor deck. Roof deck is a formed steel sheet, painted or galvanized, which
provides structural support in non-residential roofing systems. Form deck is a
formed steel sheet, painted, galvanized or uncoated, that provides structural
form support for structural or insulating concrete slabs in non-residential
floor or roofing systems. Composite floor deck is a formed steel sheet, painted,
galvanized or uncoated, that provides structural form support and positive
reinforcement for structural concrete slabs in non-residential floor systems.
Agricultural Products. Agricultural products consist of
roll-formed, corrugated sheets which are used as roofing and siding in the
construction of barns, farm machinery enclosures and light commercial buildings
and certain residential roofing applications. These products can be manufactured
from hot dipped or painted hot dipped galvanized coils. Historically, these
products have been sold primarily in rural areas. In recent years, however, such
products have found increasing acceptance in light commercial buildings.
Highway Products. Highway products consist of bridge form,
which is roll-formed corrugated sheets that are swedged on both ends and are
utilized as concrete support forms in the construction of highway bridges.
Wheeling-Nisshin
The Company owns a 35.7% equity interest in Wheeling-Nisshin,
which is a joint venture between the Company and Nisshin Holding, Incorporated,
a wholly-owned subsidiary of Nisshin Steel Co., Ltd. Wheeling-Nisshin is a
state-of-the-art processing facility located in Follansbee, West Virginia which
produces among the lightest gauge galvanized steel products available in the
United States. Shipments by Wheeling-Nisshin of hot dipped galvanized,
galvanneal, galvalume and aluminized products, principally to the construction
industry, totaled 707,300 tons and 702,700 tons in 1999 and 1998, respectively.
Wheeling-Nisshin products are marketed through trading companies, and its
shipments are not consolidated into the Company's shipments.
Wheeling-Nisshin began commercial operations in 1988 with an
initial capacity of 360,000 tons. In 1993, Wheeling-Nisshin added a second hot
dipped galvanizing line, which increased its capacity by approximately 94%, to
over 700,000 annual tons and allows Wheeling-Nisshin to offer the lightest-gauge
-4-
galvanized sheet products manufactured in the United States for construction,
heating, ventilation and air-conditioning and after-market automotive
applications.
The Company's amended and restated supply agreement with
Wheeling-Nisshin expires in 2013. Pursuant to the amended supply agreement, the
Company will provide not less than 75% of Wheeling-Nisshin's steel substrate
requirements, up to an aggregate maximum of 9,000 tons per week subject to
product quality requirements. Pricing under the supply agreement is negotiated
quarterly based on a formula which gives effect to competitive market prices.
Shipments of cold rolled steel by the Company to Wheeling-Nisshin were
approximately 473,000 tons, or 19.4% of the Company's total tons shipped in 1999
and approximately 428,000 tons, or 19.1%, in 1998.
Ohio Coatings Company
The Company has a 50.0% equity interest in OCC, which is a
joint venture between the Company and Dong Yang, a leading South Korea-based tin
plate producer. Nittetsu Shoji America ("Nittetsu"), a U.S. based tin plate
importer, holds non-voting preferred stock in OCC. OCC commenced commercial
operations in January 1997. The OCC tin-coating facility is the only domestic
electro-tin plating facility constructed in the past 30 years and is positioned
to become a premier supplier of tin plate to the container and automotive
industries. The OCC tin coating line has a nominal annual capacity of 250,000
net tons, and shipped approximately 138,000 tons in 1998 and 203,000 tons in
1999. The Company produces all of its tin coated products through OCC. As part
of the joint venture agreement, the Company has the right to supply up to
230,000 tons of the substrate requirements of OCC through the year 2012, subject
to quality requirements and competitive pricing. The Company will market all of
OCC's products. Nittetsu markets the product as a sales agent for the Company.
In 1999 and 1998 OCC had operating income of $2.1 million and $0.8 million,
respectively.
Other Steel Related Operations of the Company
The Company owns an electrogalvanizing facility which had
revenues of $47.1 million in 1999 and $45.7 million in 1998, while providing an
outlet for approximately 60,000 tons of steel in a normal year and a facility
that produces oxygen and other gases used in the Company's steel-making
operations. The Company also has a 12 1/2% ownership interest in Empire Iron
Mining Partnership ("Empire"), which operates a mine located in Palmer,
Michigan.
Customers
The Company markets an extensive mix of products to a wide
range of manufacturers, converters and processors. The Company's 10 largest
customers (including Wheeling-Nisshin) accounted for approximately 43.7% of its
net sales in 1999, 39.7% in 1998, and 30.2% in 1997. Wheeling-Nisshin was the
only customer to account for more than 10% of net sales in 1999 and 1998.
Wheeling-Nisshin accounted for 16.2% and 14.6% of net sales in 1999 and 1998,
respectively. No single customer accounted for more than 10% of net sales in
1997. Geographically, the majority of the Company's customers are located within
a 350-mile radius of the Ohio Valley. However, the Company has taken advantage
of its river-oriented production facilities to market via barge into more
distant locations such as the Houston, Texas and St. Louis, Missouri areas. The
Company has also acquired regional fabricated product facilities to service an
even broader geographical area.
-5-
The Company's shipments historically have been concentrated
within seven major market segments: steel service centers,
converters/processors, construction, agriculture, container, automotive, and
appliances. The Company's overall participation in the construction and the
converters/processors markets substantially exceeds the industry average and its
reliance on automotive shipments as a percentage of total shipments is
substantially less than the industry average.
Percent of Total Net Tons Shipped
Major Customer Category:
- -----------------------
Year Ended December 31,
---------------------------------------
1999 1999(1) 1997(1) 1996(1) 1995
---- ------- ------- ------- ----
Steel Service Centers 30% 29% 32% 26% 29%
Converters/Processors(2) 27 32 16 25 28
Construction 19 19 31 22 18
Agriculture 5 6 14 7 6
Containers(2) 11 8 2 7 6
Automotive 1 1 2 5 5
Appliances 3 2 2 4 4
Exports 1 1 -- 1 1
Other 3 2 1 3 3
---- ------- ------- ------- ----
Total 100% 100% 100% 100% 100%
---- ------- ------- ------- ----
(1) The allocation among customer categories was affected by the
ten-month work stoppage.
(2) Products shipped to Wheeling-Nisshin and OCC are included
primarily in the Converters/Processors and Containers markets,
respectively.
Set forth below is a description of the Company's major
customer categories:
Steel Service Centers. The Company's shipments to steel
service centers are heavily concentrated in the areas of hot rolled and hot
dipped galvanized coils. Due to increased in-house costs to steel companies
during the 1980's for processing services such as slitting, shearing and
blanking, steel service centers have become a major factor in the distribution
of hot rolled products to ultimate end users. In addition, steel service centers
have become a significant factor in the sale of hot dipped galvanized products
to a variety of small consumers such as mechanical contractors, who desire not
to be burdened with large steel inventories.
Converters/Processors. The growth of the Company's shipments
to the converters/processors market is principally attributable to the increase
in shipments of cold rolled products to Wheeling-Nisshin, which uses cold rolled
coils as a substrate to manufacture a variety of coated products, including hot
dipped galvanized and aluminized coils for the automotive, appliance and
construction markets. As a result of the second line expansion, the Company's
shipments to Wheeling-Nisshin increased significantly beginning in 1993. The
converters/processors industry also represents a major outlet for the Company's
hot rolled products, which are converted into finished commodities such as pipe,
tubing and cold rolled strip.
Construction. The Company's shipments to the construction
industry are heavily influenced by fabricated product sales. The Company
services the non-residential and agricultural building and highway industries,
principally through shipments of hot dipped galvanized and painted cold rolled
products. With its acquisitions during the 1980's and early 1990's of regional
facilities, the Company has doubled its fabricated products shipments and has
been able to market its products into broad geographical areas.
Agriculture. The Company's shipments to the agricultural
market are principally sales of roll-formed, corrugated sheets which are used as
roofing and siding in the construction of barns, farm machinery enclosures and
light commercial buildings.
-6-
Containers. The vast majority of the Company's shipments to
the container market are concentrated in tin mill products, which are utilized
extensively in the manufacture of food, aerosol, beverage and general line cans.
The container industry has represented a stable market. The balance of the
Company's shipments to this market consists of cold rolled products for pails
and drums. As a result of the OCC joint venture, the Company phased out its tin
mill production facilities and distributes tin products produced by OCC.
Automotive. Unlike the majority of its competitors, the
Company is not heavily dependent on shipments to the automotive industry.
However, the Company seeks to establish higher value-added niches in this
market, particularly in the area of hot dipped galvanized products for deep
drawn automotive underbody parts. In addition, the Company has been a supplier
of tin mill products for automotive applications, such as oil filters and
gaskets.
Appliance. The Company's shipments to the appliance market are
concentrated in hot dipped galvanized, electrogalvanized and hot rolled coils.
These products are furnished directly to appliance manufacturers as well as to
blanking, drawing and stamping companies that supply OEMs. The Company has
concentrated on niche product applications primarily used in washer/dryer,
refrigerator/freezer and range appliances.
Manufacturing Process
In the Company's primary steelmaking process, iron ore
pellets, coke, limestone and other raw materials are consumed in the blast
furnace to produce hot metal. Hot metal is further converted into liquid steel
through its basic oxygen furnace ("BOF") process where impurities are removed,
recycled scrap is added and metallurgical properties for end use are determined
on a batch-by-batch (heat) basis. The Company's BOF has two vessels, each with a
steelmaking capacity of 285 tons per heat. From the BOF, the heats of steel are
sent to the ladle metallurgy facility ("LMF"), where the temperature and
chemistry of the steel are adjusted to precise tolerances. Liquid steel from the
LMF then is formed into slabs through the process of continuous casting. After
continuous casting, slabs are reheated, reduced and finished by extensive
rolling, shaping, tempering and, in certain cases, by the application of
coatings at the Company's downstream operations. Finished products are normally
shipped to customers in the form of coils or fabricated products. The Company
has linked its steelmaking and rolling equipment with a computer based
integrated manufacturing control system to coordinate production tracking and
sales activities.
Raw Materials
The Company has a 12.5% ownership interest in Empire Iron
Mining Partnership which operates a mine located in Palmer, Michigan. The
Company is obligated to purchase approximately 12.5% or 1.0 million gross tons
per year (at current production levels) of the mine's annual ore output.
Interest in related ore reserves as of December 31, 1999, is estimated to be
19.6 million gross tons. The Company generally consumes approximately 2.5
million gross tons of iron ore pellets in its blast furnaces. The Company's pro
rata cash operating cost of Empire currently approximates the market price of
ore. The Company obtains approximately half of its iron ore from spot and
medium-term purchase agreements at prevailing world market prices. It has
commitments for the majority of its blast furnace iron ore pellet needs through
2002 from world class suppliers.
The Company has a long-term supply agreement with a third
party to provide the Company with a substantial portion of the Company's
metallurgical coal requirements at competitive prices. The Company's coking
operations require a substantial amount of metallurgical coal.
The Company currently produces coke in excess of its
requirements and typically consumes generally all of the resultant by-product
coke oven gas. In 1999, approximately 1.6 million tons of coking coal were
consumed in the production of blast furnace coke by the Company. The Company
sells its excess coke and coke oven by-products to third-party trade customers.
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The Company's operations require material amounts of other raw
materials, including limestone, oxygen, natural gas and electricity. These raw
materials are readily available and are purchased on the open market. The
Company is presently dependent on external steel scrap for approximately 8.75%
of its steel melt. The cost of these materials has been susceptible in the past
to price fluctuations, but worldwide competition in the steel industry has
frequently limited the ability of steel producers to raise finished product
prices to recover higher material costs. Certain of the Company's raw material
supply contracts provide for price adjustments in the event of increased
commodity or energy prices.
Backlog
Order backlog was 375,883 net tons at December 31, 1999,
compared to 365,622 net tons at December 31, 1998. All orders related to the
backlog at December 31, 1999 are expected to be shipped during the first half of
2000, subject to delays at the customers' request. The order backlog represents
orders received but not yet completed or shipped. In times of strong demand, a
higher order backlog may allow the Company to increase production runs, thereby
enhancing production efficiencies.
Capital Investments
The Company believes that it must continuously strive to
improve productivity, product quality and control manufacturing costs in order
to remain competitive. Accordingly, the Company is committed to continuing to
make necessary capital investments with the objective of reducing manufacturing
costs per ton, improving the quality of steel produced and broadening the array
of products offered to the Company's served markets. The Company's capital
expenditures (including capitalized interest) for 1999 were approximately $72.1
million, including $7.7 million on environmental projects. Capital expenditures
in 1997 and 1998 were lower than in recent years due to the strike. From 1995 to
1999, such expenditures aggregated approximately $252.2 million. This level of
capital expenditures was needed to maintain productive capacity, improve
productivity and upgrade selected facilities to meet competitive requirements
and maintain compliance with environmental laws and regulations. The capital
expenditure program has included improvements to the Company's infrastructure,
blast furnaces, steel-making facilities, 80-inch hot strip mill and finishing
operations, and has resulted in improved shape, gauge, surface and physical
characteristics for its products. Continuous and substantial capital and
maintenance expenditures will be required to maintain operating facilities,
modernize finishing facilities to remain competitive and to comply with
environmental control requirements. The Company anticipates funding its capital
expenditures in 2000 from cash on hand and funds generated by operations, sale
of receivables under the Receivables Facility and funds available under the
Revolving Credit Facility. The Company anticipates that capital expenditures
will approximate depreciation on average, over the next few years.
Energy Requirements
During 1999 coal constituted approximately 68% of the
Company's total energy consumption, natural gas 26% and electricity 6%. Many of
the Company's major facilities that use natural gas have been equipped to use
alternative fuels. The Company continually monitors its operations regarding
potential equipment conversion and fuel substitution to reduce energy costs.
Employment
Total active employment of the Company at December 31, 1999
totaled 4,436 employees, of which 3,348 were represented by the United
Steelworkers of America ("USWA"), and 118 by other unions. The remainder
consisted of 890 salaried employees and 80 non-union operating employees.
On August 12, 1997, the Company and the USWA entered into a
new five-year labor agreement ending a ten-month strike. The new collective
bargaining agreement provided for a defined benefit pension plan, a retirement
enhancement program, short-term bonuses and special assistance payments for
employees not immediately recalled to work and $1.50 in hourly wage increases
over its term of not less than five years.
-8-
It also provides for the reduction of 850 jobs, mandatory multicrafting as well
as modification of certain work practices
Competition
The steel industry is cyclical in nature and has been marked
historically by overcapacity, resulting in intense competition. The Company
faces increasing competitive pressures from other domestic integrated producers,
minimills and processors. Processors compete with the Company in the areas of
slitting, cold rolling and coating. Minimills are generally smaller volume steel
producers that use ferrous scrap metals as their basic raw material. Compared to
integrated producers, minimills, which rely on less capital intensive steel
production methods, have certain advantages. Since minimills typically are not
unionized, they have more flexible work rules that have resulted in lower
employment costs per net ton shipped. Since 1989, significant flat rolled
minimill capacity has been constructed and these minimills now compete with
integrated producers in product areas that traditionally have not faced
significant competition from minimills. In addition, there has been significant
additional flat rolled minimill capacity constructed in recent years. These
minimills and processors compete with the Company primarily in the commodity
flat rolled steel market. Such minimills and processors may also compete with
the Company in producing value-added products. In addition, the increased
competition in commodity product markets influence certain integrated producers
to increase product offerings to compete with the Company's custom products.
As the single largest steel consuming country in the western
world, the United States has long been a favorite market of steel producers in
Europe and Japan. In addition, steel producers from Korea, Taiwan, and Brazil,
and non-market economies such as Russia and China, have also recognized the
United States as a target market.
Total annual steel consumption in the United States has
increased from 88 million to slightly over 117 million tons since 1991. A number
of steel substitutes, including plastics, aluminum, composites and glass, have
reduced the growth of domestic steel consumption.
Steel imports of flat rolled products as a percentage of
domestic apparent consumption, excluding semi-finished steel, have been
approximately 23% in 1999, 27% in 1998, and 20% in 1997. Imports surged in 1998
due to severe economic conditions in Southeast Asia, Latin America, Japan and
Russia, among others. World steel demand, world export prices, U.S. dollar
exchange rates and the international competitiveness of the domestic steel
industry have all been factors in these import levels.
ITEM 2. PROPERTIES
The Company has one raw steel producing plant and various
other finishing and fabricating facilities. The Steubenville complex is an
integrated steel producing facility located at Steubenville and Mingo Junction,
Ohio and Follansbee, West Virginia. The Steubenville complex includes coke oven
batteries that produce all coke requirements, two operating blast furnaces, two
basic oxygen furnaces, a two-strand continuous slab caster with an annual slab
production capacity of approximately 2.4 million tons, an 80-inch hot strip mill
and pickling and coil finishing facilities. The Ohio and West Virginia
locations, which are separated by the Ohio River, are connected by a railroad
bridge owned by the Company. A pipeline is maintained for the transfer of coke
oven gas for use as fuel from the coke plant to several other portions of the
Steubenville complex. The Steubenville complex primarily produces hot rolled
products, which are either sold to third parties or shipped to other of the
Company's facilities for further processing into value-added products.
-9-
The following table lists the other principal plants of the
Company and the annual capacity of the major products produced at each facility:
Other Major Facilities
Locations and Operations Capacity Tons/Year Major Product
- ------------------------------------------------------- ----------------------- ----------------------------------------
Allenport, Pennsylvania:
Continuous pickler, tandem mill, temper
mill and annealing 950,000 Cold rolled sheets
Beech Bottom, West Virginia:
Paint line 120,000 Painted steel in coil form
Canfield, Ohio:
Electrogalvanizing line, paint line, ribbon Electrolytic galvanized sheet and
and oscillating rewind slitters 65,000 strip
Martins Ferry, Ohio: Hot dipped galvanized sheets and
Temper mill, zinc coating lines 750,000 coils
Yorkville, Ohio:
Continuous pickler, tandem mill, temper mills and 660,000 Black plate and cold rolled sheets
annealing lines
All of the above facilities currently owned by the Company are
regularly maintained in good operating condition. However, continuous and
substantial capital and maintenance expenditures are required to maintain the
operating facilities, to modernize finishing facilities in order to remain
competitive and to meet environmental control requirements.
The Company has fabricated products facilities at Fort Payne,
Alabama; Houston, Texas; Lenexa, Kansas; Louisville, Kentucky; Minneapolis,
Minnesota; Warren, Ohio; Gary, Indiana; Emporia, Virginia; Grand Junction,
Colorado and Klamath Falls and Brooks, Oregon.
The Company maintains regional sales offices in Atlanta,
Chicago, Detroit, Philadelphia, Pittsburgh and its corporate headquarters in
Wheeling, West Virginia.
ITEM 3. LEGAL PROCEEDINGS
Environmental Matters
The Company, as are other industrial manufacturers, is subject
to increasingly stringent standards relating to the protection of the
environment. In order to facilitate compliance with these environmental
standards, the Company has incurred capital expenditures for environmental
control projects aggregating $7.7 million, $9.5 million and $12.4 million for
1999, 1998 and 1997, respectively. The Company anticipates spending
approximately $13.6 million in the aggregate on major environmental compliance
projects through the year 2002, estimated to be spent as follows: $6.7 million
in year 2000, $3.1 million in 2001 and $3.8 million in 2002. Due to the
possibility of unanticipated factual or regulatory developments, the amount and
timing of future expenditures may vary substantially from such estimates.
The Company has been identified as a potentially responsible
party under the Comprehensive Environmental Response, Compensation and Liability
Act ("Superfund") or similar state statutes at several waste sites. The Company
is subject to joint and several liability imposed by Superfund on potentially
responsible parties. Due to the technical and regulatory complexity of remedial
activities and the difficulties attendant to identifying potentially responsible
parties and allocating or determining liability among them, the Company is
unable to reasonably estimate the ultimate cost of compliance with Superfund
laws. The Company believes, based upon information currently available, that
it's liability for clean up and remediation costs in connection with the Buckeye
Reclamation Landfill will be between $1.5 million and $2.0 million. At
-10-
five other sites (MIDC Glassport, Tex-Tin, Breslube Penn, Four County Landfill
and Beazer) the Company estimates the costs to approximate $500,000. The Company
is currently funding its share of remediation costs.
The Clean Air Act Amendments of 1990 ("the Clean Air Act")
directly affect the operations of many of the Company's facilities, including
coke ovens. The Company is presently in compliance with the provisions of the
Act. However, under the Clean Air Act, coke ovens generally will be required to
comply with progressively more stringent standards which will result in an
increase in environmental capital expenditures and costs for environmental
compliance. The forecasted environmental expenditures include amounts which will
be spent on projects relating to compliance with these standards.
In an action brought in 1985 in the U.S. District Court for
the Northern District of West Virginia, the EPA claimed violations of the Solid
Waste Disposal Act at a surface impoundment area at the Follansbee facility. The
Company and USEPA entered into a consent decree in October 1989 requiring
certain soil and groundwater testing and monitoring. The surface impoundment has
been removed and a final closure plan has been submitted to the USEPA. The
Company is waiting for approval from the USEPA to implement the plan. Until the
USEPA responds to the Company, the full extent and cost of remediation cannot be
ascertained.
In June of 1995 the USEPA informally requested corrective
action affecting other areas of the Follansbee facility. The USEPA sought to
require the Company to perform a site investigation of the Follansbee plant. The
Company actively contested the USEPA's jurisdiction to require a site
investigation, but subsequently agreed to comply with a final administrative
order issued by the USEPA in June 1998 to conduct a Resource Conservation and
Recovery Act ("RCRA") facility investigation to determine the nature and extent
of soil and groundwater contamination and appropriate clean up methods. The
Company anticipates spending up to $1 million in year 2000 for sampling at the
site.
The Company is currently operating in substantial compliance
with three consent decrees (two with the EPA and one with the Pennsylvania
Department of Environmental Resources) with respect to wastewater discharges at
Allenport, Pennsylvania and Mingo Junction, Steubenville, and Yorkville, Ohio.
All of the foregoing consent decrees are nearing expiration. A petition to
terminate the Allenport consent decree was filed in 1998.
In March 1993, the USEPA notified the Company of Clean Air Act
violations alleging particulate matter and hydrogen sulfide emissions in excess
of allowable concentrations at the Company's Follansbee Coke Plant. In January
1996, the USEPA and the Company entered into a consent decree. Although the
Company has paid the civil penalties due pursuant to the terms of the consent
decree, the Company continues to accrue stipulated penalties pursuant to such
consent decree. As of December 1999, the Company has accrued stipulated
penalties of approximately $2.7 million.
In June 1999, the Ohio Attorney General filed a lawsuit
against the Company alleging certain hazardous waste law violations at the
Company's Steubenville and Yorkville, Ohio facilities and certain water
pollution law violations at the Company's Yorkville, Ohio facility relating
primarily to the alleged unlawful discharge of spent pickle liquor. The lawsuit
contains forty-four separate counts and seeks preliminary and permanent
injunctive relief in addition to civil penalties. Settlement negotiations with
Ohio EPA are on-going and Ohio EPA has demanded a civil penalty of $300,000.
In January 1998, the Ohio Attorney General notified the
Company of a draft consent order and initial civil penalties in the amount of $1
million for various air violations at the Company's Steubenville and Mingo
Junction, Ohio facilities occurring from 1992 through 1996. In November 1999,
Ohio EPA and the Company entered into a consent decree settling the civil
penalties related to this matter for approximately $250,000. The consent decree
also obligates the Company to pay certain stipulated penalties for future air
violations.
The Company has experienced discharges of oil through NPDES
permitted outfalls at its Mingo
-11-
Junction, Ohio and Allenport, Pennsylvania plants. The Company spent
approximately $0.8 million and $1.5 million in 1998 and 1999, respectively, to
investigate and clean up oil spills at its Mingo Junction, Ohio facility. The
Company anticipates spending approximately $1.4 million to install a slip lined
pipe and an automated oil recovery system at its Mingo Junction, Ohio facility.
The Company has not yet received any notices of violation from the regulatory
agencies for such oil spills.
USEPA conducted a multimedia inspection of the Company's
Steubenville, Mingo Junction, Yorkville, and Martins Ferry, Ohio facilities in
March and June 1999. The inspection covered all environmental regulations
applicable to these plants. The Company has received a Notice of Violation from
USEPA for alleged air violations, but has not yet received notice of any
violations of water or waste laws. The air Notice of Violation does not specify
the amount of penalties sought by USEPA. The Company is exploring settlement
with USEPA regarding such air violations.
The Company is aware of potential environmental liabilities
resulting from operations, including leaking underground and aboveground storage
tanks, and the disposal and storage of residuals on its property. Each of these
situations is being assessed and remediated in accordance with regulatory
requirements.
Non-current accrued environmental liabilities totaled $14.7
million at December 31, 1999 and $12.7 million at December 31, 1998. These
accruals were initially determined by the Company in January 1991, based on all
then available information. As new information becomes available, including
information provided by third parties, and changing laws and regulation, the
liabilities are reviewed and the accruals adjusted quarterly. Management
believes, based on its best estimate, that the Company has adequately provided
for its present environmental obligations.
Based upon information currently available, including the
Company's prior capital expenditures, anticipated capital expenditures, consent
agreements negotiated with federal and state agencies, and information available
to the Company on pending judicial and administrative proceedings, the Company
does not expect its environmental compliance costs, including the incurrence of
additional fines and penalties, if any, relating to the operation of its
facilities, to have a material adverse effect on the financial condition or
results of operations of the Company. However, as further information comes into
the Company's possession, it will continue to reassess such evaluations.
General Litigation
On October 27, 1998, the Company filed a complaint in Belmont
County, Ohio against ten trading companies, two Japanese mills and three Russian
mills alleging that it had been irreparably harmed as a result of sales of
hot-rolled steel by the defendants at prices below the cost of production. The
Company asked the Court for injunctive relief to prohibit such sales. On
November 6, 1998, defendants removed the case from Belmont County to the U.S.
District Court for the Southern District of Ohio. The Company subsequently
amended its complaint to allege violations of the 1916 Antidumping Act by nine
trading companies. The amended complaint sought treble damages and injunctive
relief. The Court dismissed WPC's state law causes of action, but allowed it to
proceed with its claims under the 1916 Antidumping Act. In early June 1999, the
U.S. District Court issued an order holding that injunctive relief is not
available as a remedy under the 1916 Antidumping Act. The Company has appealed
the Court's decision to the Sixth Circuit Court of Appeals. The Company has
reached out-of-court settlements with six of the nine steel trading companies
named in this lawsuit. The Company's claims for treble damages, but not
injunctive relief, against the three remaining defendants were subsequently
dismissed as a result of settlement negotiations.
The Company is a party to various litigation matters including
general liability claims covered by insurance. In the opinion of management,
such claims are not expected to have a material adverse effect on the financial
condition or results of operations of the Company.
-12-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
OMITTED
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
NOT APPLICABLE
-13-
ITEM 6 SELECTED FINANCIAL DATA
Five-Year Statistical (Thousands of Dollars)
1999 1998 1997* 1996* 1995
====================================================================================================================================
Consolidated Statement of Operations (in
thousands):
Net sales $ 1,081,657 $ 1,111,541 $ 489,662 $ 1,110,684 $ 1,267,869
Cost of products sold (excluding
depreciation and profit sharing) 958,186 950,080 585,609 988,161 1,059,622
Depreciation 77,724 76,321 46,203 66,125 65,760
Profit sharing -- -- -- -- 6,718
Selling, administrative and general expense 63,342 61,523 52,222 54,903 55,023
Special charge -- -- 92,701 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (17,595) 23,617 (287,073) 1,495 80,746
Interest expense on debt 37,931 36,699 27,204 23,763 22,431
Other income (expense) 318 3,478 (221) 9,476 3,234
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes, extraordinary
items and change in accounting method (55,208) (9,604) (314,498) (12,792) 61,549
Tax provision (benefit) (20,723) (3,101) (110,035) (7,509) 3,030
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary items
and change in accounting method (34,485) (6,503) (204,463) (5,283) 58,519
Extraordinary items - net of tax -- -- (25,990) -- (3,043)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (34,485) $ (6,503) $ (230,453) $ (5,283) $ 55,476
====================================================================================================================================
Financial Position:
Cash, cash equivalents and
short term investments $ -- $ 6,731 $ -- $ 35,950 $ 42,826
Working capital (11,170) 43,836 9,169 109,022 147,799
Property, plant and equipment - net 653,234 651,086 694,108 710,999 748,999
Plant additions and improvements 72,146 33,595 33,755 31,188 81,554
Total assets 1,278,022 1,256,367 1,424,568 1,245,892 1,340,035
====================================================================================================================================
Long-term debt (including current portion) 354,393 349,992 350,103 269,414 288,740
Stockholders' equity 136,797 171,282 114,712 338,487 343,770
====================================================================================================================================
Employment
Employment costs $ 297,170 $ 283,304 $ 183,550 $ 303,115 $ 325,976
Average number of employees 4,398 4,296 3,878 5,228 5,333
====================================================================================================================================
Production and Shipments:
Raw steel production - tons 2,436,000 2,446,000 663,000 1,782,000 2,199,000
Shipments of steel products - tons 2,426,000 2,243,000 851,000 2,105,000 2,385,000
====================================================================================================================================
WHEELING-PITTSBURGH CORPORATION
* The financial results of the Company for the fourth quarter of 1997 and
all of 1996 were adversely affected by the strike.
-14-
Notes to Five-Year Statistical Summary
In 1995 the Company recorded an extraordinary charge of $3.0 million,
net of taxes, to reflect the coal retiree medical benefits for additional
retirees assigned to the Company by the Social Security Administration and the
effect of recording the liability at its net present value.
In 1996 the Company experienced a work stoppage which began October 1,
1996 and continued through August 12, 1997 at eight of its plants in Ohio,
Pennsylvania and West Virginia. No steel products were produced at or shipped
from these facilities during the strike. These facilities account for
approximately 80% of the tons shipped by the Company on an annual basis.
In 1997 the Company recorded a special charge of $92.7 million related
to a new labor agreement which ended the ten-month strike. The special charge
included $66.7 million for enhanced retirement benefits, $15.5 million for
signing and retention bonuses, $3.8 million for special assistance and other
employee benefits payments and $6.7 million for a grant of one million stock
options to WPN Corp.
In 1997 the Company also recorded an extraordinary charge of $26.0
million, net of tax, related to premium and interest charges required to defease
its 93/8% Senior Unsecured Notes of $24.3 million and coal miner retiree medical
benefits of $1.7 million.
-15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
OVERVIEW
The Company was reorganized on January 3, 1991 with a business
strategy of shifting its product mix to value-added products through downstream
expansion and acquisitions. In July 1994, a new holding company, WHX, which
separated the steel related operations from non-steel related businesses, was
created. The Company comprises primarily all of the steel related operations of
WHX. The reader is referred to the WHX Form 10-K for further information
regarding its parent-company's operations.
In August 1997 the Company and the USWA entered into a new
five-year labor agreement which settled a ten-month strike. The new labor
agreement provides for a restructuring of work rules and staffing requirements
and a reduction in the expense associated with retiree healthcare costs. The
improved work rules allowed the Company to eliminate 850 hourly jobs
(approximately 20% of the work force). Partially offsetting these savings are
hourly wage increases and the costs of a defined benefit pension plan, which
includes a retirement incentive.
The strike materially affected the financial performance of
the Company in 1996, 1997, and 1998. All of WPC's production facilities resumed
operations as of September 30, 1997. Raw steel production achieved 90% of
capacity in the fourth quarter of 1997. By June 30, 1998 the Company was
producing at its pre-strike production levels and shipping at its historical mix
of products.
In 1998, WHX merged WPC's defined benefit pension plan with
those of its wholly owned Handy & Harman ("H&H") subsidiary. The pension
obligations are accounted for by the parent company as a multi- employer plan.
The merger eliminated WPC cash funding obligations estimated in excess of $135.0
million. WPC pension expense is allocated by the common parent and totaled $4.2
million in 1999 and $9.8 million in 1998. Based on current actuarial
assumptions, the merged pension plan is fully funded.
1999 Compared to 1998
Net sales for 1999 totaled $1.1 billion on shipments of 2.4
million tons of steel products, compared to $1.1 billion on shipments of 2.2
million tons in 1998. The increase in tons shipped is primarily attributable to
increased shipments to joint ventures and affiliates. Average sales prices
decreased from $496 per ton shipped to $446 per ton shipped primarily due to a
decrease of 5.5% in steel prices, reflecting severe pressure on steel prices due
to the significant increase in low-priced steel imports.
Cost of goods sold decreased from $424 per ton shipped in 1998
to $395 per ton shipped in 1999. The decease in operating cost per ton is due to
lower costs for purchased semi-finished steel and scrap and higher operating
levels at finishing facilities during 1999. The operating rates for 1999 and
1998 were 101.5% and 101.9%, respectively. Raw steel production was 100%
continuous cast.
Depreciation expense increased to $ 77.7 million in 1999,
compared to $76.3 million in 1998, due to increased levels of depreciable
assets.
Selling, administrative and general expense increased to $63.3
million in 1999 from $61.5 million in 1998. The increase is due primarily to an
increased marketing effort in 1999.
Interest expense increased to $37.9 million in 1999 from $36.7
million in 1998. The increase is due primarily to the increased borrowings under
the Revolving Credit Facility.
Other income decreased to $0.3 million in 1999 from $3.5
million in 1998. The decrease is a result
-16-
of lower equity income on joint venture investments and lower interest income
earned. Equity income totaled $3.4 million in 1999 and $5.3 million in 1998.
The tax benefits for 1999 and 1998 were $20.7 million and $3.1
million, respectively.
Net loss totaled $34.5 million in 1999, compared to a net loss
of $6.5 million in 1998.
1998 Compared to 1997
Net sales for 1998 totaled $1.1 billion on shipments of 2.2
million tons of steel products, compared to $489.7 million on shipments of 851
thousand tons in 1997. The increase in sales and tons shipped is primarily
attributable to the work stoppage at eight plants during the 1997 period.
Production and shipment of steel products at these plants closed on October 1,
1996 and the work stoppage continued to August 12, 1997. Average sales prices
decreased from $576 per ton shipped to $496 per ton shipped primarily due to a
shift to a lower valued mix of products and a decrease of 2.7% in steel prices,
reflecting severe pressure on steel prices due to the significant increase in
low-priced steel imports.
Cost of goods sold decreased from $689 per ton shipped in 1997
to $424 in 1998. The 1998 costs reflect lower pension expense due to the merged,
fully funded pension plans, while the 1997 costs reflect the effect of high
fixed cost and low capacity utilization and higher levels of external steel
purchases due to the work stoppage. The operating rates for 1998 and 1997 were
101.9% and 27.6%, respectively. Raw steel production was 100% continuous cast.
Depreciation expense increased 65% to $76.3 million in 1998,
compared to 1997, due to higher levels of raw steel production and its effect on
units of production depreciation methods. Raw steel production increased by
269%.
Selling, administrative and general expense increased 17.8% to
$61.5 million in 1998, from $52.2 million in 1997. The increase is due to the
reduced level of operations in 1997.
Interest expense increased to $36.7 million in 1998 from $27.2
million in 1997. The increase is due primarily to the interest expense incurred
during 1998 for the Term Loan Agreement which was entered into in November of
1997.
Other income increased to $3.5 million in 1998 from $0.2
million expense in 1997. The increase is a result of higher equity income,
offset by increased securitization fees during 1998. The increase in equity
income is the result of lower equity losses from the Company's investment in
OCC. An equity loss in OCC of $2.9 million in 1998 compared to an equity loss of
$8.5 million in 1997 for start-up of the OCC joint venture. Increased
securitization fees in 1998 are due to increased borrowings under the
Receivables Facility.
The tax benefits for 1998 and 1997 were $3.1 million and
$110.0 million, respectively, before recording a tax benefit related to
extraordinary charges in 1997.
Loss before extraordinary items in 1998 totaled $6.5 million,
compared to $204.5 million in 1997.
The 1997 extraordinary charge of $40.0 million ($26.0 million
net of tax) reflects the premium and interest of $37.4 million on the legal
defeasance of long term debt, and $2.6 million for coal miner retiree medical
expense attributable to the allocation of additional retirees to the Company by
the Social Security Administration (SSA).
Net loss totaled $6.5 million in 1998, compared to a net loss
of $230.5 million in 1997.
-17-
Liquidity and Capital Resources
Net cash flow provided by operating activities for 1999
totaled $41.7 million reflecting earnings of $22.5 million before depreciation
and taxes. Working capital accounts (excluding cash, short term borrowings and
current maturities of long-term debt) provided $35.2 million of funds. Accounts
receivable increased $18.2 million (excluding $5.0 million sale of trade
receivables under the securitization agreement) due to record shipping levels
during the fourth quarter of 1999. Inventories valued principally by the LIFO
method for financial reporting purposes, totaled $252.2 million at December 31,
1999, a decrease of $7.1 million from the prior year end. Trade payables and
accruals increased $44.5 million due to an increase in business activity. Net
cash flow used in investing activities for 1999 totaled $62.5 million including
capital expenditures of $72.1 million. Net cash flow provided by financing
activities totaled $14.0 million including borrowings under the Revolving Credit
Facility of $12.9 million and an increase in net intercompany receivables of
$11.5 million. At December 31, 1999, total liquidity, comprising cash, cash
equivalents and funds available under our Revolving Credit Facility and
Receivables Facility, totaled $32.7 million compared with $54.4 million at
December 31, 1998.
For the year ended December 31, 1999, the Company spent $72.1
million (including capitalized interest) on capital improvements, including $7.7
million on environmental control projects. Non-current accrued environmental
accruals totaled $14.7 million at December 31, 1999 and $12.7 million at
December 31, 1998. These accruals were initially determined by the Company in
January 1991, based on all available information. As new information becomes
available, including information provided by third parties, and changing laws
and regulations, the accruals are reviewed and adjusted quarterly. Based upon
information currently available, including the Company's prior capital
expenditures, anticipated capital expenditures, consent agreements negotiated
with Federal and state agencies and information available to the Company on
pending judicial and administrative proceedings, the Company does not expect its
environmental compliance and liability costs, including the incurrence of
additional fines and penalties, if any, relating to the operation of its
facilities, to have a material adverse effect on the financial condition or
results of operations of the Company. However, as further information comes into
the Company's possession, it will continue to reassess such evaluations.
Continuous and substantial capital and maintenance
expenditures will be required to maintain and, where necessary, upgrade
operating facilities to remain competitive, and to comply with environmental
control requirements. It is anticipated that necessary capital expenditures,
including required environmental expenditures, in future years will approximate
depreciation expense and represent a material use of operating funds. The
Company anticipates funding its capital expenditures in 2000 from cash on hand,
the sale of receivables under the Receivables Facility, availability under the
Revolving Credit Facility, and funds generated from operations.
The Company has a commitment to fund the working capital
requirements of each of OCC and Wheeling-Nisshin in proportion to its ownership
interest if cash requirements of such joint ventures are in excess of
internally-generated and available borrowed funds. The Company anticipates that
Wheeling-Nisshin will not have such funding requirements in the foreseeable
future. As of December 31, 1999, the Company's investment in OCC was $14.0
million. The Company does not anticipate that additional funding requirements
will be needed in 2000. OCC may require future working capital contributions
from its equity partners; however, the Company does not believe that any such
required funding will be material to the Company's liquidity.
In 1994, a special purpose wholly-owned subsidiary of WPSC
entered into an agreement to sell (up to $75 million on a revolving basis) an
undivided percentage ownership in a designated pool of accounts receivable
generated by WPSC and two of the Company's subsidiaries: Wheeling Construction
Products, Inc. ("WCPI") and Pittsburgh Canfield Company ("PCC") (the Receivables
Facility). In 1995 WPSC entered into an agreement to include the receivables
generated by Unimast Incorporated ("Unimast"), a wholly-owned subsidiary of WHX,
in the pool of accounts receivable sold. In May 1999, the Receivables Facility
was extended through May 2003 and increased to $100 million on a revolving
basis. Effective June of 1999,
-18-
Unimast withdrew from participation in the facility. Accounts receivable at
December 31, 1999 exclude $100 million representing uncollected accounts
receivable sold with recourse limited to the extent of uncollectible balances.
Fees paid by WPSC under this Receivables Facility were based upon variable rates
that range from 4.94% to 7.42%. Based on the Company's collection history, the
Company believes that credit risk associated with the above arrangement is
immaterial.
On April 30, 1999, WPSC entered into a Third Amended and
Restated Revolving Credit Facility ("RCF") with Citibank, N.A. as agent. The
RCF, as amended, provides for borrowings for general corporate purposes up to
$150 million and a $25 million sub-limit for letters of credit. The RCF
agreement expires May 3, 2003. Interest rates are based on the Citibank prime
rate plus 1.25% and/or a Eurodollar rate plus 2.25%. The margin over the prime
rate and the Eurodollar rate can fluctuate based upon performance. A commitment
fee of 0.5% is charged on the unused portion. The letter of credit fee is 2.25%
and is also performance based. Borrowings are secured primarily by 100% of the
eligible inventory of WPSC, Pittsburgh-Canfield Corporation ("PCC") and Wheeling
Construction Products, Inc. ("WCPI"), and the terms of the RCF contain various
restrictive covenants, limiting among other things dividend payments or other
distribution of assets, as defined in the RCF. The Company is a wholly-owned
subsidiary of WHX. WPSC, PCC and WCPI are wholly-owned subsidiaries of the
Company. Certain financial covenants associated with leverage, capital spending,
cash flow and interest coverage must be maintained. WPC, PCC and WCPI have each
guaranteed all of the obligations of WPSC under the Revolving Credit Facility.
Borrowings outstanding against the RCF at December 31, 1999 totaled $79.9
million. Letters of credit outstanding under the RCF were $0.1 million at
December 31, 1999.
In November 1997 WPC issued $275.0 million principal amount of
9 1/4% Senior Notes. In April 1998 the Company filed a registration statement
relating to an exchange offer for the Notes under the Securities Act of 1933.
The proceeds from the 9 1/4% Senior Unsecured Notes and the Term Loan Agreement
were used to defease $266.2 million of 93/8% Senior Secured Notes and to pay
down borrowings under the RCF.
In November 1997 the Company entered into the Term Loan
Agreement with DLJ Capital Funding, Inc., as syndication agent pursuant to which
the Company borrowed $75.0 million. Interest on the Term Loan is payable
quarterly on March 15, June 15, September 15 and December 15 as to Base rate
loans, and with respect to LIBOR loans on the last day of each applicable
interest period, and if such interest period shall exceed three months at
intervals of three months after the first day of such interest period. Amounts
outstanding under the Term Loan Agreement bear interest at the Base rate (as
defined therein) plus 2.25% or the LIBOR rate (as defined therein) plus 3.25%.
The Company's obligations under the Term Loan Agreement are guaranteed by its
present and future operating subsidiaries. The Company may prepay the
obligations under the Term Loan Agreement subject to a premium of 1.0% of the
principal after November 15, 1999 with no premium on or after November 15, 2000.
Under the terms of its labor agreement, the Company
established a defined benefit pension plan for USWA - represented employees. In
1998, WHX merged WPC's defined benefit pension plan with those of its wholly
owned Handy & Harman ("H&H") subsidiary. The pension obligations are accounted
for by the parent company as a multi-employer plan. The merger eliminated WPC
cash funding obligations estimated in excess of $135.0 million. WPC pension
expense is allocated by the common parent and totaled $9.8 million in 1998 and
$4.2 million in 1999. Based on current actuarial assumptions, the merged pension
plan is fully funded.
WPC's company wide Year 2000 Project was ready on schedule.
The project addressed all aspects of computing at WPC including mainframe
systems, external data interfaces to customers, suppliers, banks and government,
mainframe controlling software, voice and data systems, internal networks and
personal computers, plant process control systems, building controls, and
surveying WPC's major suppliers and customers to assure their readiness.
Mainframe business systems, external data interfaces,
mainframe software, voice and data systems, internal networks, personal
computers and building controls, as well as process control and auxiliary
systems
-19-
proved to be year 2000 compliant during the January 1, 2000 date rollover.
Critical suppliers and customers are being monitored with no major problems
identified to date.
The total costs associated with the Year 2000 project are not
expected to be material to the Company's financial condition or results of
operations. The anticipated total cost of the Year 2000 Project was $2.3
million. The total amount expended on the project through January 2000 is $2.4
million. Funds are being provided to the project through departmental expenses
budgeted for at the beginning of this project.
Failure to correct a Year 2000 problem could have resulted in
an interruption of certain normal business activities or operations. WPC
believes that the implementation of the Year 2000 project changes prevented any
interruptions. WPC will continue to monitor critical business systems for
possible Year 2000 systems issues.
Short-term liquidity is dependent, in large part, on cash on
hand, investments, availability under the Revolving Credit Facility, sale of
receivables under the Receivables Facility, general economic conditions and
their effect on steel demand and prices. Long-term liquidity is dependent upon
the Company's ability to sustain profitable operations and control costs during
periods of low demand or pricing in order to sustain positive cash flow. The
Company satisfies its working capital requirements through investments, the
Receivables Facility, borrowing availability under the RCF and funds generated
from operations. The Company believes that, based on current levels of
operations and anticipated improvements in operating results, cash flows from
operations and borrowings available under the RCF will enable the Company to
fund its liquidity and capital expenditure requirements for the foreseeable
future, including scheduled payments of interest on the Notes and payments of
interest and principal on the Company's other indebtedness, including borrowings
under the Term Loan Agreement. However, external factors, such as worldwide
steel production and demand and currency exchange rates could materially affect
the Company's results of operations and financial condition. There can be no
assurance that the Company will be able to maintain its short-term and/or its
long-term liquidity. A failure by the Company to maintain its liquidity could
have a material adverse effect on the Company.
When used in the Management's Discussion and Analysis, the
words "anticipate", "estimate" and similar expressions are intended to identify
forward-looking statements. Within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, which are intended to be covered by the
safe harbors created thereby. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including without limitation, the
ability of the Company to develop market and sell its products, the effects of
competition and pricing and Company and industry shipment levels. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward-looking statements included herein will
prove to be accurate.
Quantitative and Qualitative Disclosures About Market Risks
Commodity Price Risk and Related Risks
In the normal course of business, the Company is exposed to
price fluctuations related to the purchase of natural gas, steel products, coal,
coke, electricity and certain nonferrous metals used as raw materials. 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.
-20-
Interest Rate Risk
The Company is subject to the effects of interest rate
fluctuations on certain of its financial instruments. A sensitivity analysis of
the projected incremental effect of a hypothetical 10% change in 1999 year-end
interest rates on the fair value of WPC's financial instruments is provided in
the following table:
Carrying Market Incremental(1)
Value Value Incr./(Decr.)
----- ----- -------------
(Dollars in thousands)
Financial liabilities:
Fixed-rate long-term debt (including
amounts due within one year) $274,175 $258,500 $21,656
(1) Reflects a 10% decrease in interest rates for financial liabilities.
Fair value of cash and cash equivalents, receivables,
short-term borrowings, accounts payable, accrued interest and variable rate
long-term debt approximate their carrying values and are relatively insensitive
to changes in interest rates due to the short-term maturity of the instruments
or the variable nature of the underlying interest rates. Accordingly, these
items have been excluded from the above table.
The Company attempts to maintain a reasonable balance between
fixed- and floating-rate debt in an attempt to keep financing costs as low as
possible. At December 31, 1999, a majority of the Company's portfolio of
long-term debt consisted of fixed-rate instruments. Accordingly, the fair value
of such instruments may be relatively sensitive to effects of interest rate
fluctuations. In addition, the fair value of such instruments is also affected
by investors' assessments of the risks associated with industries in which the
Company operates as well as the Company's overall creditworthiness and ability
to satisfy such obligations upon their maturity. However, the Company's
sensitivity to interest rate declines and other market risks that might result
in a corresponding increase in the fair value of its fixed-rate debt portfolio
would only have an unfavorable effect on the Company's results of operations and
cash flows to the extent that the Company elected to repurchase or retire all of
a portion of its fixed-rate debt portfolio at an amount in excess of the
corresponding carrying value.
See Note G to the consolidated financial statements for
additional information concerning the Company's long-term debt arrangements.
Safe Harbor
The Company's quantitative and qualitative disclosures about
market risk include forward-looking statements with respect to management's
opinion about the risks 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.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This pronouncement requires all
derivative instruments to be reported at fair value on the balance sheet;
depending on the nature of the derivative instrument, changes in fair value will
be recognized either in net income or as an element of other comprehensive
income. SFAS 133 is effective for fiscal years beginning after June 15, 2000.
The Company has not engaged in significant activity with respect to derivative
instruments or hedging activities in the past. Management of the Company has not
yet determined the impact, if any, of the adoption of SFAS 133 on the Company's
financial position or results of operations.
-21-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Wheeling-Pittsburgh Corporation (a
wholly-owned subsidiary of WHX Corporation)
In our opinion, the accompanying consolidated balance sheets
and the related consolidated statements of operations and of cash flows present
fairly, in all material respects, the financial position of Wheeling-Pittsburgh
Corporation and its subsidiaries (the "Company") at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 10, 2000
-22-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WHEELING-PITTSBURGH CORPORATION
(a wholly-owned subsidiary of WHX Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
--------------------------------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands)
Revenues:
Net sales.......................................................... $ 1,081,657 $ 1,111,541 $ 489,662
Cost and expenses:
Cost of products sold, excluding
depreciation..................................................... 958,186 950,080 585,609
Depreciation....................................................... 77,724 76,321 46,203
Selling, administrative and general expense........................ 63,342 61,523 52,222
Special charge..................................................... -- -- 92,701
----------------- ------------------- --------------------
1,099,252 1,087,924 776,735
----------------- ------------------- --------------------
Operating income (loss)............................................ (17,595) 23,617 (287,073)
Interest expense on debt........................................... 37,931 36,699 27,204
Other income (expense)............................................. 318 3,478 (221)
Loss before taxes
and extraordinary item........................................... (55,208) (9,604) (314,498)
Tax provision (benefit)............................................ (20,723) (3,101) (110,035)
----------------- ------------------- --------------------
Loss before
extraordinary item............................................... (34,485) (6,503) (204,463)
Extraordinary charge--net of tax................................... -- -- (25,990)
----------------- ------------------- --------------------
Net loss .......................................................... (34,485) (6,503) (204,463)
================= =================== ====================
See Notes to Consolidated Financial Statements
-23-
WHEELING-PITTSBURGH CORPORATION
(a wholly-owned subsidiary of WHX Corporation)
CONSOLIDATED BALANCE SHEET
December 31,
1999 1998
---- ----
(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ -- $ 6,731
Trade receivables, less allowances for doubtful
accounts of $915 and $1,095................................................. 57,688 39,504
Inventories................................................................... 252,195 259,339
Prepaid expenses and deferred charges......................................... 4,425 6,141
-------------------- ---------------------
Total current assets.................................................... 314,308 311,715
Investment in associated companies.............................................. 64,229 69,075
Property, plant and equipment, at cost less
accumulated depreciation ..................................................... 653,234 651,086
Deferred income taxes........................................................... 162,344 147,162
Due from affiliates............................................................. 56,203 44,693
Deferred charges and other assets............................................... 27,704 32,636
-------------------- ---------------------
$ 1,272,022 $ 1,256,367
==================== =====================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade payables................................................................ $ 127,448 $ 96,615
Short term debt............................................................... 79,900 66,999
Payroll and employee benefits................................................. 65,927 58,522
Federal, state and local taxes................................................ 12,965 8,488
Deferred income taxes--current................................................ 27,406 27,156
Interest and other............................................................ 11,417 9,882
Long-term debt due in one year................................................ 415 217
------------------- -----------------
Total current liabilities............................................... 325,478 267,879
Long-term debt.................................................................. 353,978 349,775
Other employee benefit liabilities.............................................. 392,143 414,955
Other liabilities............................................................... 69,626 52,476
------------------- -----------------
$ 1,278,022 $ 1,256,367
------------------- -----------------
STOCKHOLDER'S EQUITY:
Common stock - $.01 Par value; 100 shares
issued and outstanding..................................................... -- --
Additional paid-in capital...................................................... 335,138 335,138
Accumulated deficit............................................................. (198,341) (163,856)
------------------- -----------------
136,797 171,282
------------------- -----------------
$ 1,278,022 $ 1,256,367
=================== =================
See Notes to Consolidated Financial Statements
-24-
WHEELING-PITTSBURGH CORPORATION
(a wholly-owned subsidiary of WHX Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
-----------------------------------------------
1999 1998 1997*
---- ---- -----
(Dollars in thousands)
Cash flows from operating activities:
Net loss .................................................................. $ (34,485) $ (6,503) $(230,453)
Items not affecting cash from operating activities:
Depreciation ............................................................ 77,724 76,321 46,203
Other postretirement benefits ........................................... (7,898) (8,174) 2,322
Coal retirees' medical benefits (net of tax) ............................ -- -- 1,700
Premium on early debt retirement (net of tax) ........................... -- -- 24,290
Income taxes ............................................................ (19,653) (3,594) (110,495)
Special charges (net of current portion) ................................ -- -- 69,137
Pension expense ......................................................... 4,161 9,773 9,327
Equity (income) loss in affiliated companies ............................ (3,358) (5,333) 1,206
Decrease (increase) from working capital elements:
Trade receivables ....................................................... (23,184) (20,935) (43,780)
Trade receivables sold .................................................. 5,000 26,000 24,000
Inventories ............................................................. 7,144 (3,482) (62,528)
Trade payables .......................................................... 30,833 (19,944) 65,059
Other current assets .................................................... 1,716 18,797 (11,572)
Other current liabilities ............................................... 13,667 (5,589) 4,744
Other items--net .......................................................... (9,945) 15,512 35,3345
--------- --------- ---------
Net cash flow provided by (used in) operating activities .................. 47,722 72,849 (175,506
--------- --------- ---------
Cash flows from investing activities:
Plant additions and improvements ........................................ (72,146) (33,595) (33,755)
Investments in affiliates ............................................... 3,212 -- (7,150)
Proceeds from sales of assets ........................................... 1,460 607 1,217
Dividends from affiliated companies ..................................... 5,000 5,000 2,500
--------- --------- ---------
Net cash used in investing activities ..................................... (62,474) (27,988) (37,188)
--------- --------- ---------
Cash flows from financing activities:
Long-term debt proceeds, net of issuance cost ........................... -- -- 340,270
Long-term debt (retirement) borrowings .................................. 4,401 (111) (268,277)
Premium on early debt retirement ........................................ -- -- (32,600)
Short term debt borrowings (payments) ................................... 12,901 (22,801) 89,800
Letter of credit collateralization ...................................... 8,229 1,520 16,984
Receivables from affiliates ............................................. (11,510) (16,738) 30,567
--------- --------- ---------
Net cash provided by (used in) financing activities ....................... 14,021 38,130 176,744
--------- --------- ---------
(Decrease) increase in cash and cash equivalents .......................... (6,731) 6,731 (35,950)
Cash and cash equivalents at beginning of year ............................ 6,731 -- 35,950
--------- --------- ---------
Cash and cash equivalents at end of year .................................. $ -- $ -- $ --
========= ========= =========
* Reclassified
See Notes to Consolidated Financial Statements
-25-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
The accounting policies presented below have been followed in
preparing the accompanying consolidated financial statements.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of
all subsidiary companies. All significant intercompany accounts and transactions
are eliminated in consolidation. The Company uses the equity method of
accounting for investments in unconsolidated companies owned 20% or more.
Earnings Per Share
Presentation of earnings per share is not meaningful since the
Company is a wholly owned subsidiary of WHX Corporation. See Note A--Corporate
Structure.
Business Segment
The Company is primarily engaged in one line of business and
has one industry segment, which is the making, processing and fabricating of
steel and steel products. The Company's products include hot rolled and cold
rolled sheet, and coated products such as galvanized, prepainted and tin mill
sheet. The Company also manufactures a variety of fabricated steel products
including roll formed corrugated roofing, roof deck, form deck, floor deck,
culvert, bridge form and other products used primarily by the construction,
highway and agricultural markets.
Through an extensive mix of products, the Company markets to a
wide range of manufacturers, converters and processors. The Company's 10 largest
customers (including Wheeling-Nisshin) accounted for approximately 43.7% of its
net sales in 1999, 39.7% in 1998 and 30.2% in 1997. Wheeling-Nisshin was the
only customer to account for more than 10% of net sales in 1998 and 1999.
Wheeling-Nisshin accounted for 16.2% and 14.6% of net sales in 1999 and 1998,
respectively. No single customer accounted for more than 10%of net sales in
1997. Geographically, the majority of the Company's customers are located within
a 350-mile radius of the Ohio Valley. However, the Company has taken advantage
of its river-oriented production facilities to market via barge into more
distant locations such as the Houston, Texas and St. Louis, Missouri areas. The
Company has acquired regional facilities to service an even broader geographical
area.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit
and highly liquid debt instruments with original maturities of three months or
less.
Inventories
Inventories are stated at cost which is lower than market.
Cost is determined by the last-in first-out ("LIFO") method for substantially
all inventories. In 1999 and 1998, approximately 86% and 87%, respectively, of
inventories are valued using the LIFO method.
-26-
Property, Plant and Equipment
Depreciation is computed on the straight line and the modified
units of production methods for financial statement purposes and accelerated
methods for income tax purposes. The modified units of production method adjusts
the straight line method based on an activity factor for operating assets.
Adjusted annual depreciation is not less than 60% nor more than 110% of straight
line depreciation. Accumulated depreciation after adjustment is not less than
75% nor more than 110% of straight line depreciation. Interest cost is
capitalized for qualifying assets during the assets' acquisition period.
Capitalized interest cost is amortized over the life of the asset.
Maintenance and repairs are charged to income. Renewals and
betterments made through replacements are capitalized. Profit or loss on
property dispositions is credited or charged to income.
Pensions and Other Postretirement Plans
The Company has a tax qualified defined benefit pension plan
covering United Steelworkers of America ("USWA") represented hourly employees
and substantially all salaried employees and tax qualified defined contribution
pension plans covering other hourly employees and substantially all salaried
employees. The defined benefit plan provides for a defined monthly benefit based
on years of service. The defined contribution plans provide for contributions
based on a percentage of compensation for salaried employees and a rate per hour
worked for hourly employees. Costs for the defined contribution plans are being
funded currently. Unfunded accumulated benefit obligations under the defined
benefit plan are subject to annual minimum cash funding requirements under the
Employees Retirement Income Security Act ("ERISA").
The Company sponsors medical and life insurance programs for
substantially all employees. Similar group medical programs extend to pensioners
and dependents. The management plan provides basic medical and major medical
benefits on a non-contributory basis through age 65.
Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes". Recognition is given in the accounts for the income tax effect of
temporary differences in reporting transactions for financial and tax purposes
using the deferred liability method. Tax provisions and the related tax payments
or refunds have been reflected in the Company's financial statements in
accordance with a tax sharing agreement between WHX and the Company.
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.
-27-
NOTE A--Corporate Structure
Wheeling-Pittsburgh Corporation ("WPC") and together with its
subsidiaries, (the "Company"), is a wholly owned subsidiary of WHX Corporation
("WHX"). Wheeling-Pittsburgh Steel Corporation ("WPSC") is a wholly owned
subsidiary of WPC.
At December 31, 1999 and 1998, amounts due from affiliates
totaled $56.2 million and $44.7 million, respectively. These amounts reflect
cash advances between affiliates, dividends paid by WPC on behalf of WHX,
intercompany tax allocations and Unimast accounts receivable for trade
shipments.
NOTE B -- Special Charge - New Labor Agreement
The Company recorded a special charge of $92.7 million in
1997. The special charge is primarily related to certain benefits included in
its new collective bargaining agreement.
The special charges included enhanced retirement benefits paid
under the defined benefit pension program which totaled $66.7 million and were
recorded under the provisions of Statement of Financial Accounting Standard
No.88, "Employers' Accounting For Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits" (SFAS No.88), and various
other charges which totaled $26.0 million. These charges include $15.5 million
for signing and retention bonuses, $3.8 million for special assistance payments
to laid-off employees and other employee benefits and $6.7 million for the fair
value of a stock option grant to WPN Corp. for its performance in negotiating a
new labor agreement.
NOTE C--Pensions, Other Postretirement and Postemployment Benefits
Pension Programs
The Company provides defined contribution pension programs for
both hourly and salaried employees, and prior to August 12, 1997 also provided a
defined contribution pension program for USWA-represented employees. These tax
qualified defined contribution plans provide, in the case of hourly employees,
an increasing Company contribution per hour worked based on the age of its
employees. A similar tax qualified plan for salaried employees provides defined
Company contributions based on a percentage of compensation dependent upon age
and in certain cases age and service of its employees. The Company also
established a supplemental defined benefit pension plan for its salaried
employees.
On August 12, 1997, the Company established a defined benefit
pension plan for USWA-represented employees pursuant to a new labor agreement.
The plan includes individual participant accounts of USWA- represented employees
from the hourly defined contribution plan and merges the assets of those
accounts into the defined benefit plan.
As of December 31, 1999, $131.1 million of fully vested funds
are held in trust for benefits earned under the hourly defined contribution
pension plans and $41.6 million of fully vested funds are held in trust for
benefits earned under the salaried employees defined contribution plan.
Approximately 87% of the assets are invested in equities, 12% are in fixed
income investments and 1% in cash and cash equivalents. All plan assets are
invested by professional investment managers.
All pension provisions charged against income totaled $12.6
million, $13.4 million and $9.6 million in 1997, 1998 and 1999, respectively. In
1997, the Company also recorded a $66.7 million charge for enhanced retirement
benefits paid under the defined benefit pension plan, pursuant to a new labor
agreement.
Defined Benefit Plan
The plan was established pursuant to a collective bargaining
agreement ratified on August 12, 1997.
-28-
Prior to that date, benefits were provided through a defined contribution plan,
the WPSC Retirement Security Plan ("Retirement Security Plan").
The defined benefit pension plan covers employees represented
by the USWA. The plan also includes individual participant accounts from the
Retirement Security Plan. The assets of the Retirement Security Plan were merged
into the Defined Benefit Pension Plan.
Since the plan includes the account balances from the
Retirement Security Plan, the plan includes both defined benefit and defined
contribution features. The gross benefit, before offsets, is calculated based on
years of service and the current benefit multiplier under the plan. This gross
amount is then offset for benefits payable from the Retirement Security Plan and
benefits payable by the Pension Benefit Guaranty Corporation from previously
terminated plans. Individual employee accounts established under the Retirement
Security Plan are maintained until retirement. Upon retirement, the account
balances are converted into monthly benefits that serve as an offset to the
gross benefit, as described above. Aggregate account balances held in trust in
individual employee accounts which will be available upon retirement to offset
the gross benefit at December 31, 1999 totaled $130.3 million.
As part of the new five-year labor agreement, the Company
offered a limited program of Retirement Enhancements. The Retirement Enhancement
program provide for unreduced retirement benefits to the first 850 employees who
retired after October 1, 1996. In addition, each retiring participant could
elect a lump sum payment of $25,000 or a $400 monthly supplement payable until
age 62. More than 850 employees applied for retirement under this program by
December 31, 1997. The Retirement Enhancement program represented a Curtailment
and Special Termination Benefits under SFAS No. 88. The Company recorded a
charge of $66.7 million in 1997 to cover the retirement enhancement program.
In 1998 the Company established a supplemental defined benefit
plan covering its salaried employees employed as of January 31, 1998 which
provides a guaranteed minimum benefit based on years of service and
compensation. The gross benefit from this plan is offset by the annuitized value
of the defined contribution plan account balance and any benefits payable from
the Pension Benefit Guaranty Corporation from the previously terminated defined
benefit pension plan.
In 1998, WHX merged WPC's defined benefit pension plan with
those of its wholly owned Handy & Harman ("H&H") subsidiary. The pension
obligations are accounted for by the parent company as a multi- employer plan.
The merger eliminated WPC cash funding obligations estimated in excess of $135.0
million. WPC pension expense is allocated by the common parent and totaled $4.2
million in 1999 and $9.8 million in 1998. Based on current actuarial
assumptions, the merged pension plan is fully funded.
-29-
The amounts (prepaid) accrued at December 31, included the
following components.
Postretirement Benefits
Pension Benefits Other Than Pensions
(Dollars in Thousands) (Dollars in Thousands)
1999 1998 1999 1998
---- ---- ---- ----
Change in benefit obligation:
Benefit Obligation at beginning of year $ -- $ 172,431 $ 299,013 $ 308,812
Service cost -- 1,467 2,612 2,231
Interest cost -- 3,518 18,918 19,172
Actuarial (gain) -- (10,390) (28,164) (3,674)
Benefits paid -- (7,527) (22,193) (27,528)
Plan Amendments -Implementation -- -- -- --
Business Combinations -- (159,499) -- --
Curtailments/Settlements/Termination Benefits -- -- -- --
Transfers from DC Plans -- -- -- --
-------------- --------- --------- ---------
Benefit Obligation at December 31 $ -- $ -- $ 270,186 $ 299,013
-------------- --------- --------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year $ -- $ 5,180 $ 424 $ 7,795
Actual return on plan assets -- 11,421 23 137
Benefits paid -- (7,527) (447) (7,508)
Business combinations -- (9,074) -- --
Transfers from DC Plans -- -- -- --
-------------- --------- --------- ---------
Fair value of plan assets at December 31 $ -- $ -- $ -- $ 424
-------------- --------- --------- ---------
Plan assets in excess of (less than)
benefit obligation $ -- $ -- $(270,186) $(298,589)
Unrecognized prior service cost -- -- (32,650) (36,568)
Unrecognized net actuarial (gain)loss -- -- (91,731) (70,034)
-------------- --------- --------- ---------
Net amount recognized at December 31 $ -- $ -- $(394,567) $(405,191)
============== ========= ========= =========
Amounts recognized in the statement
of financial position consist of:
Accrued benefit liability $ -- $ -- $(394,567) $(405,191)
Intangible asset -- -- -- --
-------------- --------- --------- ---------
Net amount recognized $ -- $ -- $(394,567) $(405,191)
============== ========= ========= =========
Net Periodic (credit) costs for pension and postretirement benefits
other than pensions (principally health care and life insurance) for employees
and covered dependents.
Postretirement Benefits
Pension Benefits Other Than Pensions
---------------- -----------------------
1999 1998 1999 1998 1997
---- ---- ---- ---- ----
(Dollars in Thousands) (Dollars in Thousands)
Components of net periodic (credit) cost:
Service cost $ -- $ 1,467 $ 2,612 $ 2,231 $ 2,488
Interest cost -- 3,518 18,918 19,172 20,950
Expected return on plan assets -- 204 (6) (156) --
Curtailment (gain)/loss -- -- -- -- --
Amortization of prior service cost -- 2,149 (3,918) (3,918) --
Recognized actuarial (gain) /loss -- (288) (3,309) (5,696) (7,490)
--------- -------- -------- -------- --------
Total $ -- $ 7,050 $ 14,297 $ 11,633 $ 15,948
========= ======== ======== ======== ========
-30-
The discount rate and rates of compensation increases used in
determining the benefit obligations at December 31, 1999, 1998, and 1997, and
the expected long-term rate of return on assets in each of the years 1999, 1998,
and 1997 were as follows.
Postretirement Benefits
Pension Benefits Other Than Pensions
---------------- ------------------------
1999 1998 1999 1998 1997
---- ---- ---- ---- ----
Discount rate -- 7.0% 8.0% 6.5% 7.0%
Expected return on assets -- 10.0% 8.0% 8.0% 8.0%
Rate of compensation increase -- N/A -- -- --
Medical care cost trend rate -- N/A 8.0% 8.5% 9.0%
401-k Plan
Effective January 1, 1994 the Company began matching salaried employee
contributions to the 401(k) plan with shares of the Company's Common Stock. The
Company matches 50% of the employees contributions. The employer contribution is
limited to a maximum of 3% of an employee's salary. Matching contributions of
WHX Common Stock pursuant to the 401(k) plan are charged to the Company at
market value through the intercompany accounts. At December 31, 1999, 1998 and
1997, the 401(k) plan held 368,225 shares, 288,157 shares and 275,537 shares of
WHX Common Stock, respectively.
Postemployment Benefits
The Company provides benefits to former or inactive employees after
employment but before retirement. Those benefits include, among others,
disability, severance and workers' compensation. The assumed discount rate used
to measure the benefit liability was 8.0% at December 31, 1999 and 6.5% at
December 31, 1998.
Other Postretirement Benefits
The Company sponsors postretirement benefit plans that cover both
management and hourly retirees and dependents. The plans provide medical
benefits including hospital, physicians' services and major medical expense
benefits and a life insurance benefit. The hourly employees' plans provide
non-contributory basic medical and a supplement to Medicare benefits, and major
medical coverage to which the Company contributes 50% of the insurance premium
cost. The management plan has provided basic medical and major medical benefits
on a non-contributory basis through age 65.
The cost of postretirement medical and life benefits for eligible
employees are accrued during the employee's service period through the date the
employee reaches full benefit eligibility. The Company defers and amortizes
recognition of changes to the unfunded obligation that arise from the effects of
current actuarial gains and losses and the effects of changes in assumptions.
The Company funds the plans as current benefit obligations are paid.
Additionally, in 1994 the Company began funding a qualified trust in accordance
with its collective bargaining agreement. The new collective bargaining
agreement provides for the use of those funds to pay current benefit obligations
and suspends additional funding until 2002.
For measurement purposes, medical costs are assumed to increase at
annual rates as stated above and declining gradually to 5.5% in 2004 and beyond.
The health care cost trend rate assumption has significant effect on the costs
and obligation reported. A 1% increase in the health care cost trend rate in
each year would result in approximate increases in the accumulated
postretirement benefit obligation of $20.3 million and net periodic benefit cost
of $3.8 million. A 1% decrease in the health care cost trend rate in each year
would result in approximate decreases in the accumulated postretirement benefit
obligation of $18.1 million and net periodic benefit cost of $3.4 million.
-31-
Coal Industry Retiree Health Benefit Act
The Coal Industry Retiree Health Benefit Act of 1992 ("the Act")
created a new United Mine Workers of America postretirement medical and death
benefit plan to replace two existing plans which had developed significant
deficits. The Act assigns companies the remaining benefit obligations for former
employees and beneficiaries, and a pro rata allocation of benefits related to
unassigned beneficiaries (orphans). The Company's obligation under the Act
relates to its previous ownership of coal mining operations.
At December 31, 1999, the actuarially determined liability discounted
at 8.0% covering 460 assigned retirees and dependents and 166 orphans, totaled
$9.5 million. At December 31, 1998, the actuarially determined liability
discounted at 6.5% covering 494 assigned retirees and dependents and 188
orphans, totaled $11.0 million. At December 31, 1997 the actuarially determined
accrued liability discounted at 7% covering 532 assigned retirees and dependents
and 133 orphans, totaled $10.8 million. The Company recorded an extraordinary
charge of $1.7 million (net of tax) in 1997 related to assignment of additional
orphans.
NOTE D--Income Taxes
Year ended December 31,
--------------------------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands)
Income Taxes Before Extraordinary Items
Current
Federal tax provision (benefit) ............................. $ (1,188) $ 93 $ 0
State tax provision ......................................... 118 400 460
--------- --------- ---------
Total income taxes current .................................... (1,070) 493 460
--------- --------- ---------
Deferred
Federal tax provision (benefit) ............................. (19,653) (3,594) (110,495)
--------- --------- ---------
Income tax provision (benefit) ................................ $ (20,723) $ (3,101) $(110,035)
========= ========= =========
Total Income Taxes
Current
Federal tax provision (benefit) ............................. $ (1,188) $ 93 $ 0
State tax provision ......................................... 118 400 460
--------- --------- ---------
Total income taxes current .................................... (1,070) 493 460
--------- --------- ---------
Deferred
Federal tax provision (benefit) ............................. (19,653) (3,594) (124,490)
--------- --------- ---------
Income tax provision (benefit) ................................ $ (20,723) $ (3,101) $(124,030)
========= ========= =========
Components of Total Income Taxes
Operations .................................................... $ (20,723) $ (3,101) $(110,035)
Extraordinary items ........................................... -- -- (13,995)
--------- --------- ---------
Income tax provision (benefit) ................................ $ (20,723) $ (3,101) $(124,030)
========= ========= =========
-32-
Deferred income taxes result from temporary differences in the
financial basis and tax basis of assets and liabilities. The type of differences
that give rise to deferred income tax liabilities or assets are shown in the
following table:
Deferred Income Tax Sources
1999 1998
---- ----
(Dollars in millions)
Assets
Postretirement and postemployment employee benefits .................. $ 139.8 $ 143.6
Operating loss carryforward (expiring in 2005 to 2019) ............... 75.6 60.1
Minimum tax credit carryforwards (indefinite carryforward) ........... 51.3 51.4
Provision for expenses and losses .................................... 42.5 47.4
Leasing activities ................................................... 20.3 22.2
State income taxes ................................................... 1.1 1.3
Miscellaneous other .................................................. 5.0 5.5
------ ------
Deferred tax assets ............................................. 335.6 331.5
------ ------
Liabilities
Property plant and equipment ......................................... (144.9) (155.9)
Inventory ............................................................ (31.4) (30.3)
Pension .............................................................. (0.6) (1.4)
State income taxes ................................................... (0.9) (0.9)
Miscellaneous other .................................................. (0.8) (0.5)
------ ------
Deferred tax liability .......................................... (178.6) (189.0)
Valuation allowance .................................................. (22.1) (22.5)
------ ------
Deferred income tax asset--net ....................................... $ 134.9 $ 120.0
------ ------
As of December 31, 1999, for financial statement reporting
purposes, a balance of approximately $20.0 million of prereorganization tax
benefits exist. These benefits will be reported as a direct addition to equity
as they are recognized. No prereorganization tax benefits have been recorded in
1999, 1998 or 1997. During 1999, the valuation allowance decreased $0.4 million
due to the expiration of tax credit carryovers.
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 or control pre-tax income will be limited to approximately $32.0
million. Post- change of control net operating losses do not have an annual
offset limitation.
Total federal and state income taxes paid in 1999, 1998 and
1997 were $0.3 million, $1.2 million and $0.7 million, respectively.
Federal tax returns have been examined by the Internal Revenue
Service ("IRS") through 1987. The Company is currently undergoing an IRS
examination of tax returns for the years 1995-1997. Management believes that
there will be no material adjustments to the income tax returns filed in those
years. The statute of limitations has expired for years through 1994; however,
the IRS can review prior years to adjust any NOLs incurred in such years and
carried forward to offset income in subsequent open years. Management believes
it has adequately provided for all taxes on income.
-33-
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:
December 31,
---------------------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands)
Income (loss) before taxes and ...................................... $ (55,209) $ (9,604) $(314,498)
extraordinary item ................................................ ========= ========= =========
Tax provision (benefit) at statutory rate ........................... $ (19,323) $ (3,361) $(110,074)
Increase (reduction) in tax due to:
Percentage depletion .............................................. (530) (829) (1,092)
Equity earnings ................................................... (844) (1,484) 338
State income tax net of federal effect ............................ 77 260 299
Change in valuation allowance ..................................... (428) 2,481 --
Other miscellaneous ............................................... 325 (168) 494
--------- --------- ---------
Tax provision (benefit) ............................................. $ (20,732) $ (3,101) $(110,035)
========= ========= =========
Note E--Inventories
December 31,
-------------------------
1999 1998
---- ----
(Dollars in thousands)
Finished products .............................. $ 43,419 $ 33,936
In-process ..................................... 114,771 114,416
Raw materials .................................. 61,483 74,988
Other materials and supplies ................... 28,033 33,373
-------- --------
247,706 256,713
LIFO reserve ................................... 4,489 2,626
-------- --------
$252,195 $259,339
======== ========
During 1999 and 1998, certain inventory quantities were
reduced, resulting in liquidations of LIFO inventories, the effect of which
decreased income by approximately $0.6 million in 1999 and increased income by
approximately $1.8 million in 1998.
NOTE F--Property, Plant and Equipment
December 31,
-------------------------
1999 1998
---- ----
(Dollars in thousands)
Land and mineral properties ...................... $ 24,868 $ 7,715
Buildings, machinery and equipment ............... 1,105,391 1,070,946
Construction in progress ......................... 40,590 17,185
--------- ---------
1,170,849 1,095,846
Accumulated depreciation and amortization ........ 517,615 444,760
--------- ---------
$ 653,234 $ 651,086
========== ==========
-34-
The Company utilizes the modified units of production method
of depreciation which recognizes that the depreciation of steelmaking machinery
is related to the physical wear of the equipment as well as a time factor. The
modified units of production method provides for straight line depreciation
charges modified (adjusted) by the level of raw steel production. In 1999 and
1998 depreciation under the modified units of production method was $0.7 million
or 1.3% more and $1.1 million or 2% more, respectively, than straight line
depreciation.
NOTE G--Long-Term Debt
December 31,
----------------------
1999 1998
---- ----
(Dollars in thousands)
Senior Unsecured Notes due 2007, 9 1/4% .............. $274,175 $274,071
Term Loan Agreement due 2006, floating rate .......... 75,000 75,000
Other ................................................ 5,218 921
-- -------- --------
354,393 349,992
Less portion due within one year ..................... 415 217
-- -------- --------
Total Long-Term Debt(1) ......................... $353,978 $349,775
== ======== ========
(1) The fair value of long-term debt at December 31, 1999 and
December 31, 1998 was $338.7 million and $331.7 million,
respectively. Fair value of long-term debt is estimated based
on trading in the public market.
Long-term debt maturing in each of the next five years is as
follows: 2000, $415; 2001, $442; 2002, $472; 2003, $243, and
2004, $258.
A summary of the financial agreements at December 31, 1999
follows:
Revolving Credit Facility:
On April 30, 1999, WPSC entered into a Third Amended and
Restated Revolving Credit Facility ("RCF") with Citibank, N.A. as agent. The
RCF, as amended, provides for borrowings for general corporate purposes up to
$150 million, including a $25 million sub-limit for letters of credit.
The RCF agreement expires May 3, 2003. Interest rates are
based on the Citibank prime rate plus 1.25% and/or a Eurodollar rate plus 2.25%.
The margin over the prime rate and the Eurodollar rate can fluctuate based upon
performance. A commitment fee of 0.5% is charged on the unused portion. The
letter of credit fee is 2.25% and is also performance based.
Borrowings are secured primarily by 100% of the eligible
inventory of WPSC, Pittsburgh-Canfield Corporation ("PCC") and Wheeling
Construction Products, Inc. ("WCPI"), and the terms of the RCF contain various
restrictive covenants, limiting among other things dividend payments or other
distribution of assets, as defined in the RCF. The Company is a wholly-owned
subsidiary of WHX. WPSC, PCC and WCPI are wholly-owned subsidiaries of the
Company. Certain financial covenants associated with leverage, capital spending,
cash flow and interest coverage must be maintained. WPC, PCC and WCPI have each
guaranteed all of the obligations of WPSC under the RCF. Borrowings outstanding
against the RCF at December 31, 1999 totaled $79.9 million. Letters of credit
outstanding under the RCF were $0.1 million at December 31, 1999.
-35-
93/8 % Senior Notes Due 2003:
In November 1997 the Company, under the terms of the 93/8%
Senior Notes, defeased the remaining $266.2 million 93/8% Senior Notes
outstanding at a total cost of $298.8 million. The 93/8% Senior Notes were
placed into trusteeship where they will be held until redemption on November 15,
2000.
9 1/4% Senior Notes Due 2007:
On November 26, 1997 the Company issued $275 million principal
amount of 9 1/4% Senior Notes. Interest on the 9 1/4% Senior Notes is payable
semi-annually on May 15 and November 15 of each year. The Senior Notes mature on
November 15, 2007. The 9 1/4% Senior Notes were exchanged for identical notes
which were issued pursuant to an exchange offer registered under the Securities
Act of 1933, as amended.
The 9 1/4% Senior Notes are redeemable at the option of the
Company, in whole or in part, on or after November 15, 2002 at specified
redemption prices, plus accrued interest and liquidated damages, if any, thereon
to the date of redemption.
Upon the occurrence of a Change of Control (as defined), the
Company will be required to make an offer to repurchase all or any part of each
holder's Senior Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest and liquidated damages, if any, thereon to the date of
repurchase.
The 9 1/4% Senior Notes are unsecured obligations of the
Company, ranking senior in right of payment to all existing and future
subordinated indebtedness of the Company, and pari passu with all existing and
future senior unsecured indebtedness of the Company, including borrowings under
the Term Loan Agreement.
The 9 1/4% Senior Notes are fully and unconditionally
guaranteed on a joint and several and senior basis by the guarantors, which
consist of the Company's present and future operating subsidiaries. The 9 1/4%
Senior Notes indenture contains certain covenants, including, but not limited
to, covenants with respect to: (i) limitations on indebtedness; (ii) limitations
on restricted payments; (iii) limitations on transactions with affiliates; (iv)
limitations on liens; (v) limitations on sales of assets; (vi) limitations on
issuance and sale of capital stock of subsidiaries; (vii) limitations on
dividends and other payment restrictions affecting subsidiaries; and (viii)
restrictions on consolidations, mergers and sales of assets.
Term Loan Agreement
On November 26, 1997 the Company entered into the Term Loan
Agreement with DLJ Capital Funding Inc., as syndication agent pursuant to which
it borrowed $75 million.
Amounts outstanding under the Term Loan Agreement bear
interest at the base rate (as defined therein) plus 2.25% or the LIBO rate (as
defined therein) plus 3.25%. Interest on the Term Loan is payable on March 15,
June 15, September 15 and December 15 as to Base Rate Loans, and with respect to
LIBOR loans on the last day of each applicable interest period, and if such
interest period shall exceed three months, at intervals of three months after
the first day of such interest period.
The Company's obligations under the Term Loan Agreement are
guaranteed by its present and future operating subsidiaries. The Company may
prepay the obligations under the Term Loan Agreement beginning on November 15,
1998, subject to a premium of 2.0% of the principal amount thereof. Such premium
declined to 1.0% on November 15, 1999 with no premium on or after November 15,
2000.
-36-
Interest Cost
Aggregate interest costs on debt and amounts capitalized
during the three years ended December 31, 1999, are as follows:
1999 1998 1997
---- ---- ----
(Dollars in thousands)
Aggregate interest expense on long-term debt................... $40,965 $38,762 $29,431
Less: Capitalized interest..................................... 3,034 2,063 2,227
------- ------- -------
Interest expense............................................... $37,931 $36,699 $27,204
======= ======= =======
Interest Paid.................................................. $40,485 $36,924 $29,515
======= ======= =======
NOTE H--Stockholder's Equity
Changes in capital accounts are as follows:
Accumulated Capital in
Common Stock Earnings Excess of Par
Shares Amount (Deficit) Value
------ ------ --------- -----
(Dollars in thousands)
Balance January 1, 1997....................... 100 $ 0 $ 73,100 $265,387
Net income (loss)............................. -- -- (230,453) --
WPN stock option.............................. -- -- -- 6,678
----- ----- --------- --------
Balance December 31, 1997..................... 100 0 (157,353) 272,065
Net income (loss)............................. -- -- (6,503) --
Contribution To Capital....................... -- -- -- 63,073
----- ----- --------- --------
Balance December 31, 1998..................... 100 0 (163,856) 335,138
Net income (loss)............................. -- -- 34,485) --
----- ----- --------- --------
Balance December 31, 1999..................... 100 $ 0 $(198,341) $335,138
===== ===== ========= ========
The Company accounts for grants of options to purchase WHX Common Stock
in accordance with Interpretation 1 to Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees". Options to purchase WHX Common
Stock are granted at market value and cash is paid to WHX when the option is
exercised. No employee compensation amounts are recorded upon the issuance of
options to purchase WHX Common Stock.
In 1997 the compensation committee of the Board of Directors of WHX
granted an option to purchase 1,000,000 shares of WHX Common Stock to WPN Corp.
for its performance in negotiating a new five-year labor agreement. The Board of
Directors approved such grant on September 25, 1997, and the stockholders
approved it on December 1, 1997 (measurement date). The options, to the extent
not previously exercised, will expire on August 4, 2007. The fair value of the
option grant is estimated on the measurement date using the Black-Scholes
option-pricing model. The following assumptions were used in the Black-Scholes
calculation: expected volatility of 48.3%, risk-free interest rate of 5.83%, an
expected life of 5 years and a dividend yield of zero. The resulting estimated
fair value of the shares granted in 1997 was $6.7 million which was recorded as
part of the special charge related to the new labor agreement.
In 1998, WHX merged WPC's defined benefit pension plan with those of
its wholly owned Handy & Harman ("H&H") subsidiary. The pension obligations are
accounted for by the parent company as a multi- employer plan. The merger
eliminated WPC cash funding obligations estimated in excess of $135.0 million.
The pension liability on the WPC books at the time of the pension merger, net of
the deferred tax asset, was
-37-
eliminated and credited to paid-in-capital. WPC pension expense is allocated by
the common parent and totaled $4.2 million in 1999 and $9.8 million in 1998.
Based on current actuarial assumptions, the merged pension plan is fully funded.
NOTE I --Related Party Transaction
The Chairman of the Board of WHX is the President and sole shareholder
of WPN Corp. Pursuant to a management agreement effective as of January 3, 1991,
as amended, approved by a majority of the disinterested directors of WHX, WPN
Corp. provides certain financial, management advisory and consulting services to
WPC. Such services include, among others, identification, evaluation and
negotiation of acquisitions and divestitures, responsibility for financing
matters, review of annual and quarterly budgets, supervision and administration,
as appropriate, of all WPC's accounting and financial functions and review and
supervision of reporting obligations under Federal and state securities laws. In
exchange for such services, WPN Corp. received a fixed monthly fee of $208,333
in 1999 and 1998 from the Company. In December 1997 WHX stockholders approved a
grant of an option to purchase 1,000,000 shares of Common Stock to WPN Corp. for
their performance in obtaining a new labor agreement. The options were valued
using the Black-Scholes formula at $6.7 million and recorded as a special charge
related to the labor contract. The Management Agreement has a two year term and
is renewable automatically for successive one year periods, unless terminated by
either party upon 60 days' prior written notice.
The Company regularly sells steel product to Unimast at prevailing
market prices. During 1999 and 1998, the Company shipped $48.4 million and $27.2
million, respectively of steel product. Amounts due the Company at December 31,
1999 and 1998 were $3.7 million and $3.4 million, respectively.
NOTE J--Commitments and Contingencies
Environmental Matters
The Company has been identified as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund") or similar state statutes at several waste sites. The Company is
subject to joint and several liability imposed by Superfund on potentially
responsible parties. Due to the technical and regulatory complexity of remedial
activities and the difficulties attendant to identifying potentially responsible
parties and allocating or determining liability among them, the Company is
unable to reasonably estimate the ultimate cost of compliance with Superfund
laws. The Company believes, based upon information currently available, that the
Company's liability for clean up and remediation costs in connection with the
Buckeye Reclamation Landfill will be between $1.5 million and $2.0 million. At
five other sites (MIDC Glassport, Tex-Tin, Breslube Penn, Four County Landfill
and Beazer) the Company estimates costs to aggregate approximately $500,000. The
Company is currently funding its share of remediation costs.
The Company, as are other industrial manufacturers, is subject to
increasingly stringent standards relating to the protection of the environment.
In order to facilitate compliance with these environmental standards, the
Company has incurred capital expenditures for environmental control projects
aggregating $7.7 million, $9.5 million and $12.4 million for 1999, 1998 and
1997, respectively. The Company anticipates spending approximately $13.6 million
in the aggregate on major environmental compliance projects through the year
2002, estimated to be spent as follows: $6.7 million in 2000, $3.1 million in
2001 and $3.8 million in 2002. Due to the possibility of unanticipated factual
or regulatory developments, the amount of future expenditures may vary
substantially from such estimates.
Non-current accrued environmental liabilities totaled $14.7 million at
December 31, 1999 and $12.7 million at December 31, 1998. These accruals were
initially determined by the Company in January 1991, based on all then available
information. As new information becomes available including information provided
by third parties, and changing laws and regulations, the liabilities are
reviewed and the accruals adjusted
-38-
quarterly. Management believes, based on its best estimate, that the Company has
adequately provided for its present environmental obligations.
Based upon information currently available, including the Company's
prior capital expenditures, anticipated capital expenditures, consent agreements
negotiated with Federal and state agencies and information available to the
Company on pending judicial and administrative proceedings, the Company does not
expect its environmental compliance and liability costs, including the
incurrence of additional fines and penalties, if any, relating to the operation
of its facilities, to have a material adverse effect on the financial condition
or results of operations of the Company. However, as further information comes
into the Company's possession, it will continue to reassess such evaluations.
NOTE K--Other Income
December 31,
1999 1998 1997
---- ---- ----
(Dollars in thousands)
Interest and investment income.............. $ 1,584 $ 2,702 $ 4,189
Equity income............................... 3,358 5,333 (1,206)
Receivables securitization fees............. (5,876) (6,192) (3,826)
Other, net.................................. 1,252 1,635 622
------- ------- --------
$ 318 $ 3,478 $ (221)
======= ======= ========
NOTE L--Sale of Receivables
In 1994, a special purpose wholly-owned subsidiary of WPSC entered into
an agreement to sell (up to $75 million on a revolving basis) an undivided
percentage ownership in a designated pool of accounts receivable generated by
WPSC and two of the Company's subsidiaries: Wheeling Construction Products, Inc.
("WCPI") and Pittsburgh Canfield Company ("PCC") (the Receivables Facility). In
1995 WPSC entered into an agreement to include the receivables generated by
Unimast Incorporated ("Unimast"), a wholly-owned subsidiary of WHX, in the pool
of accounts receivable sold. In May 1999, the Receivables Facility was extended
through May 2003 and increased to $100 million on a revolving basis. Effective
June of 1999, Unimast withdrew from participation in the facility. Accounts
receivable at December 31, 1999 exclude $100 million representing uncollected
accounts receivable sold with recourse limited to the extent of uncollectible
balances. Fees paid by WPSC under this Receivables Facility were based upon
variable rates that range from 4.94% to 7.42%. Based on the Company's collection
history, the Company believes that credit risk associated with the above
arrangement is immaterial.
Note M--Information on Significant Joint Ventures
The Company owns 35.7% of Wheeling-Nisshin Inc. (Wheeling-Nisshin).
Wheeling-Nisshin had total debt outstanding at December 31, 1999 and 1998 of
approximately $4.1 million and $11.6 million, respectively. The Company derived
approximately 16.2% and 14.6% of its revenues from sale of steel to
Wheeling-Nisshin in 1999 and 1998, respectively. The Company received dividends
of $5.0 million annually from Wheeling-Nisshin in 1999 and 1998. Amounts due the
Company at December 31, 1999 totaled $12.9 million. Audited financial statements
of Wheeling-Nisshin are presented at page 43 because it is considered a
significant subsidiary of the Company under SEC regulations.
The Company owns 50.0% of Ohio Coatings Company (OCC). OCC had total
debt outstanding at December 31, 1999 and 1998 of approximately $53.6 million
and $57.2 million, respectively. The Company derived approximately 9.2% and 6.1%
of its revenues from sale of steel to OCC in 1999 and 1998 respectively. Amounts
due the Company at December 31, 1999 totaled $31.2 million, including an advance
of $14.4 million.
-39-
Note N-- Extraordinary Charge
Year Ended
December 31,
1997
(Dollars in thousands)
Premium on early debt retirement............ $32,600
Unamortized debt issuance cost.............. 4,770
Coal retiree medical benefits............... 2,615
Income tax effect........................... (13,995)
-------
$25,990
-------
In November 1997 the Company paid a premium of $32.6 million to defease
the remaining $266.2 million of the 93/8 Senior Notes at a total cost of $298.8
million.
In 1997, a 7% discount rate was used to calculate the actuarially
determined coal retiree medical benefit liability compared to 7.5% in 1996. In
1997 the Company also incurred higher premiums for additional retirees and
orphans assigned in 1995. See Note C.
Note O--Summarized combined financial information of the subsidiary guarantors
of the 9 1/4% Senior Notes
Year Ended December 31,
1999 1998 1997
---- ---- ----
(Dollars in thousands)
Income Data
Net sales $1,081,657 $1,111,541 $489,662
Cost of products sold, excluding depreciation 957,412 949,475 585,609
Depreciation 77,724 76,321 46,203
Selling, general and administrative expense 63,201 61,276 52,294
Special charge -- -- 92,701
----------- ---------- ---------
Operating income(loss) (16,680) 24,469 (287,145)
Interest expense 32,542 31,408 26,071
Other income(loss) (4,470) (3,904) (1,280)
----------- ---------- ----------
Income (loss) before tax (53,692) (10,843) (314,496)
Tax provision(benefit) (20,183) (3,535) (110,034)
----------- ---------- ---------
Net income (loss) $ (33,509) $ (7,308) $(204,462)
=========== ========== ==========
-40-
Year Ended December 31,
1999 1998 1997
---- ---- ----
(Dollars in thousands)
Balance Sheet Data
Assets
Current assets $ 313,828 $ 311,222 $ 324,813
Non-current assets 858,766 835,287 990,435
---------- ----------- -----------
Total assets $1,172,594 $ 1,146,509 $ 1,315,248
========== =========== ===========
Liabilities and stockholder's equity
Current liabilities $ 321,491 $ 262,926 $ 311,723
Non-current liabilities 759,253 760,127 935,834
Stockholder's equity 91,850 123,456 67,691
---------- ----------- -----------
Total liabilities and stockholder's equity $1,172,594 $1,146,509 $ 1,315,248
========== ========== ===========
Note P--Subsequent Event (Unaudited)
On March 10, 2000, the Company reached an agreement with certain of its
insurance carriers relating to several outstanding claims. As a result, the
Company will record a gain of approximately $7.5 million in the first quarter of
2000.
Note Q--Quarterly Information (Unaudited)
Financial results by quarter for the two fiscal years ended December
31, 1999 and 1998 are as follows:
Earnings (Loss)
Per Share
Net Before Earnings
Gross Extraordinary Income Extraordinary (Loss)
Net Sales Profit Charge (Loss) Charge Per Share
--------- ------ ------ ------ ------ ---------
(Dollars in thousands)
1999:
1st Quarter............... 250,048 11,463 -- (20,267) * *
2nd Quarter............... 255,799 37,610 -- (5,450)
3rd Quarter............... 282,358 38,643 -- (4,009)
4th Quarter............... 293,452 35,755 -- (4,759)
1998:
1st Quarter............... 259,121 29,182 -- (8,951) * *
2nd Quarter............... 288,767 52,361 -- 6,092
3rd Quarter............... 297,717 45,247 -- 1,959
4th Quarter............... 265,936 34,671 -- (5,603)
* Earnings per share are not meaningful because the Company is a
wholly-owned subsidiary of WHX Corporation.
-41-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
NOT APPLICABLE
PART III
OMITTED
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORT ON FORM 8-K
(a) 2. Audited Financial Statements of Wheeling-Nisshin, Inc.
The following audited Financial Statements of Wheeling-Nisshin, Inc.
are presented because Wheeling-Nisshin is considered a significant subsidiary as
defined under SEC Regulations.
-42-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Wheeling-Nisshin, Inc.
In our opinion, the accompanying balance sheets and the related statements of
income, shareholders' equity and cash flows present fairly, in all material
respects, the financial position of Wheeling-Nisshin, Inc. (the Company) at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 3 to the financial statements, effective January 1, 1999,
the Company has given retroactive effect to the change in accounting for
inventories from the last-in, first-out (LIFO) method to the first-in, first-out
(FIFO) method.
February 18, 2000, except for Note 9,
which is dated March 10, 2000
-43-
Wheeling-Nisshin, Inc.
Balance Sheets
December 31, 1999 and 1998
(in thousands except for share amounts)
1999 1998
Assets
Current assets:
Cash and cash equivalents $ 19,044 $ 21,278
Investments 39,493 48,659
Trade accounts receivable, net of allowance for bad debts of
$250 in 1999 and 1998 (Note 9) 16,856 10,262
Inventories (Notes 3 and 4) 20,248 13,287
Prepaid income taxes -- 1,045
Deferred tax assets (Note 7) 3,985 3,303
Other current assets 841 432
-------- --------
Total current assets 100,467 98,266
-------- --------
Property, plant and equipment, net (Note 5) 103,454 111,788
Debt issuance costs, net of accumulated amortization
of $1,879 in 1999 and $1,792 in 1998 22 109
Other assets 696 602
-------- --------
Total assets $204,639 $210,765
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 9,348 $ 5,381
Due to affiliates (Note 9) 9,449 3,968
Accrued interest 83 237
Accrued income taxes 809 --
Other accrued liabilities 3,653 3,970
Accrued profit sharing 2,195 6,290
Current portion of long-term debt (Note 6) 4,106 6,775
-------- --------
Total current liabilities 29,643 26,621
-------- --------
Long-term debt, less current portion (Note 6) -- 4,824
Deferred tax liabilities (Note 7) 27,220 26,271
Other long-term liabilities (Note 10) 2,500 2,500
-------- --------
Total liabilities 59,363 60,216
-------- --------
Contingencies (Note 10)
Shareholders' equity:
Common stock, no par value; authorized, issued and
outstanding, 7,000 shares 71,588 71,588
Retained earnings 73,688 78,961
-------- --------
Total shareholders' equity 145,276 150,549
-------- --------
Total liabilities and shareholders' equity $204,639 $210,765
======== ========
The accompanying notes are an integral part of these financial statements.
-44-
Wheeling-Nisshin, Inc.
Statements of Income
December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
Net sales (Note 9) $ 347,087 $ 379,415 $ 396,278
Cost of goods sold, excluding depreciation (Notes 3 and 9) 316,275 328,405 354,730
--------- ---------- ----------
Gross profit 30,812 51,010 41,548
--------- ---------- ----------
Selling, general and administrative expenses 6,880 6,594 5,233
Depreciation and amortization 12,772 13,002 12,955
--------- ---------- ----------
Operating income 11,160 31,414 23,360
--------- ---------- ----------
Other income (expense):
Interest and other income 3,049 3,002 2,203
Interest expense (464) (985) (1,398)
--------- ---------- ----------
2,585 2,017 805
--------- ---------- ----------
Income before income taxes 13,745 33,431 24,165
Provision for income taxes (Note 7) 5,018 12,259 8,938
--------- ---------- ----------
Net income $ 8,727 $ 21,172 $ 15,227
--------- ---------- ----------
Earnings per share $ 1.25 $ 3.02 $ 2.18
--------- ---------- ----------
The accompanying notes are an integral part of these financial statements.
-45-
Wheeling-Nisshin, Inc.
Statements of Shareholders' Equity
December 31, 1999, 1998 and 1997
(in thousands)
Common Retained
Stock Earnings Total
Balance at December 31, 1996 $ 71,588 $ 63,562 $ 135,150
Net income, as restated (Note 3) - 15,227 15,227
Cash dividends ($1 per share) - (7,000) (7,000)
------------ ------------- ------------
Balance at December 31, 1997, as restated 71,588 71,789 143,377
Net income, as restated (Note 3) - 21,172 21,172
Cash dividends ($2 per share) - (14,000) (14,000)
------------ ------------- ------------
Balance at December 31, 1998, as restated 71,588 78,961 150,549
Net income - 8,727 8,727
Cash dividends ($2 per share) - (14,000) (14,000)
------------ ------------- ------------
Balance at December 31, 1999 $ 71,588 $ 73,688 $ 145,276
------------ ------------- ------------
The accompanying notes are an integral part of these financial statements.
-46-
Wheeling-Nisshin, Inc.
Statements of Cash Flows
December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
Cash flows from operating activities:
Net income $ 8,727 $ 21,172 $ 15,227
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,772 13,002 12,955
Loss on disposal of property and equipment 65 6 --
Deferred income taxes 267 545 644
Net change in operating assets and liabilities:
(Increase) decrease in trade accounts receivable (6,594) 6,102 3,401
(Increase) decrease in inventories (6,961) 2,163 6,783
Decrease (increase) in prepaid and accrued income taxes 1,854 (906) (3,322)
(Increase) decrease in other assets (503) 190 197
Increase (decrease) in accounts payable 3,967 (5,303) (10,542)
Increase in due to affiliates 5,481 612 3,356
Decrease in accrued interest (154) (130) (130)
(Decrease) increase in other accrued liabilities (5,397) 2,750 (1,879)
--------- --------- ---------
Net cash provided by operating activities 13,524 40,203 26,690
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures, net (3,431) (222) (959)
Proceeds from sale of land -- 24 --
Purchase of investments (113,509) (44,214) (43,700)
Maturity of investments 122,675 24,055 35,100
--------- --------- ---------
Net cash provided by (used in) investing activities 5,735 (20,357) (9,559)
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term debt (7,493) (6,881) (6,835)
Payment of dividends (14,000) (14,000) (7,000)
--------- --------- ---------
Net cash used in financing activities (21,493) (20,881) (13,835)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (2,234) (1,035) 3,296
Cash and cash equivalents:
Beginning of the year 21,278 22,313 19,017
--------- --------- ---------
End of the year $ 19,044 $ 21,278 $ 22,313
========= ========= =========
Supplemental cash flow disclosures: Cash paid during the year for:
Interest $ 618 $ 1,115 $ 1,528
========= ========= =========
Income taxes $ 2,935 $ 12,622 $ 11,616
========= ========= =========
Supplemental schedule of noncash investing and
financing activities:
Acquisition of property, plant and equipment
included in other long-term liabilities (Note 10) $ -- $ -- $ 2,500
========= ========= =========
The accompanying notes are an integral part of these financial statements.
-47-
Wheeling-Nisshin, Inc.
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(in thousands)
1. Description of Business
Wheeling-Nisshin, Inc. (the Company) is engaged in the production
and marketing of galvanized and aluminized steel products at a
manufacturing facility in Follansbee, West Virginia. Principally all
of the Company's sales are to ten trading companies located
primarily in the United States. At December 31, 1999, Nisshin
Holding Incorporated, a wholly-owned subsidiary of Nisshin Steel
Co., Ltd., (Nisshin), and Wheeling-Pittsburgh Corporation
(Wheeling-Pittsburgh), a wholly-owned subsidiary of WHX Corporation,
owned 64.3 percent and 35.7 percent of the outstanding common stock
of the Company, respectively.
2. Summary of Significant Accounting Policies
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 consist of general cash accounts and
highly liquid debt instruments with maturities of three months or
less when purchased. Substantially all of the Company's cash and
cash equivalents are maintained at one financial institution. No
collateral or other security is provided on these deposits, other
than $100 of deposits insured by the Federal Deposit Insurance
Corporation.
Investments
The Company follows Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which requires that securities be classified as
trading, held-to-maturity, or available-for-sale. The Company's
investments, which consist of certificates of deposit, government
bonds and commercial paper, are classified as held-to-maturity and
are recorded at cost. The certificates of deposit amounted to $4,000
and $0 at December 31, 1999 and 1998, respectively, and are
maintained at one financial institution. Government bonds amounted
to $900 at December 31, 1999 and 1998. Commercial paper amounted to
$34,593 and $47,759 at December 31, 1999 and 1998, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method. Until 1998, the
Company used the last-in, first-out (LIFO) method to value its
inventories, which was approximately $510 and $1,343 higher than it
was under the FIFO method at December 31, 1998 and 1997,
respectively. Effective January 1, 1999, the Company changed to the
FIFO method (refer to Note 3).
-48-
Wheeling-Nisshin, Inc.
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(in thousands)
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation.
Major renewals and improvements are charged to the property
accounts, while replacements, maintenance and repairs, which do not
improve or extend the useful lives of the respective assets are
expensed. Upon disposition or retirement of property, plant and
equipment, the cost and the related accumulated depreciation are
removed from the accounts. Gains or losses on sales are reflected in
other income.
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets.
The carrying value of property, plant and equipment is evaluated
periodically in relation to the operating performance and future
undiscounted cash flows of the underlying operations. Adjustments
are made if the sum of expected future net cash flows is less than
book value.
Debt Issuance Costs
Debt issuance costs associated with long-term debt secured to
finance the construction of the Company's original manufacturing
facility and the second production line were capitalized and are
being amortized using the effective interest method over the term of
the related debt.
Income Taxes
The Company follows SFAS No. 109, "Accounting for Income Taxes," to
recognize deferred tax liabilities and assets for the difference
between the financial statement carrying amounts and the tax basis
of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
Earnings per Share
The Company follows SFAS No. 128, "Earnings per Share," which
requires the disclosure of basic and diluted earnings per share.
Earnings per share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding during
each period.
3. Accounting Change
Effective January 1, 1999, the Company elected to change its method
of inventory valuation from the LIFO method to the FIFO method. The
Company believes the FIFO method provides a better matching of
inventory costs with product sales. The change has been applied
retroactively by restating the financial statements for prior years.
The effect of this restatement was to increase net income for the
year ended December 31, 1998 by $523 or $.07 per share and to
decrease net income by $846 or $.12 per share for the year ended
December 31, 1997. The cumulative effect of the change as of January
1, 1997 was not material.
-49-
Wheeling-Nisshin, Inc.
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(in thousands)
4. Inventories
Inventories consisted of the following at December 31:
1999 1998
Raw materials $ 11,043 $ 7,576
Finished goods 9,205 5,711
-------- ---------
$ 20,248 $ 13,287
-------- ---------
5. Property, Plant and Equipment
Property, plant and equipment consisted of the following at December
31:
Estimated Useful Lives
(Years) 1999 1998
Buildings and building improvements 15-31.5 $ 34,773 $ 34,674
Land improvements 15 3,097 3,097
Machinery and equipment 3-15 165,583 165,569
Office equipment 10 2,797 3,262
---------- -----------
206,250 206,602
Less accumulated depreciation (107,034) (95,816)
---------- -----------
99,216 110,786
Land 1,002 1,002
Construction in process 3,236 -
---------- -----------
$ 103,454 $ 111,788
---------- -----------
Depreciation expense was $12,685, $12,915 and $12,871 in 1999, 1998
and 1997, respectively.
-50-
Wheeling-Nisshin, Inc.
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(in thousands)
6. Long-Term Debt
Long-term debt consisted of the following at December 31:
1999 1998
Industrial revenue bonds for the second production line accruing
interest at .625% over the LIBOR rate, as adjusted for periods
ranging from three months to one year, as elected by the Company.
The interest rate on the bonds was 6.65% at December 31, 1999 and
6.66% at December 31, 1998. The bonds are payable in equal
semi-annual installments of $2,853 plus interest through
September 2000. $ 4,106 $ 11,529
Capital lease obligations accruing interest at rates ranging from
10% to 13.8%, payable in monthly installments
through December 1999. - 70
-------- --------
4,106 11,599
Less current portion 4,106 6,775
-------- --------
$ - $ 4,824
-------- --------
The industrial revenue bonds are collateralized by substantially all
property, plant and equipment and are guaranteed by Nisshin. In
addition, the industrial revenue bonds provide that dividends may
not be declared or paid without the prior written consent of the
lender. Such approval was obtained for the dividends paid in years
1999, 1998 and 1997.
7. Income Taxes
The provision for income taxes for the years ended December 31
consisted of:
1999 1998 1997
Current:
U.S. Federal $ 4,445 $11,005 $ 7,771
State 306 709 523
Deferred 267 545 644
-------- ------- --------
$ 5,018 $12,259 $ 8,938
-------- ------- --------
-51-
Reconciliation of the federal statutory and effective tax rates for
1999, 1998 and 1997 is as follows:
1999 1998 1997
Federal statutory rate 35.0 % 35.0 % 35.0%
State income taxes 1.6 1.6 1.5
Other, net (0.1) 0.1 0.5
------ ----- -----
36.5 % 36.7 % 37.0%
------ ------ -----
The deferred tax assets and liabilities recorded on the balance
sheets as of December 31 are as follows:
1999 1998
Deferred tax assets:
Accrued expenses $ 1,897 $ 1,143
Other 2,088 2,160
--------- ---------
3,985 3,303
--------- ---------
Deferred tax liabilities:
Depreciation and amortization 23,492 22,729
Other 3,728 3,542
------ ---------
27,220 26,271
------ ---------
$ 23,235 $ 22,968
-------- ---------
The Company has received two separate tax credits for new business
investment and jobs expansion (Supercredits) in West Virginia. The
Supercredits may only be applied to offset the West Virginia income
tax liability generated by the specific business expansion that
created the credit. The first Supercredit was granted in 1988 and
expired in 1997. However, the Company has approximately $2,500 of
credit carryforwards attributed to the 1988 investment that may be
used to offset the Company's West Virginia income tax liability for
the three taxable years ended 2000.
The second Supercredit granted in 1993 can be used to offset up to
$5,958 annually of West Virginia income tax attributable to the 1993
investment through the 2002 tax year. A portion of any unused credit
may be carried forward for three taxable years thereafter.
A valuation allowance for the entire amount of the Supercredits has
been recognized in the accompanying financial statements.
Accordingly, as the Supercredits are utilized, a benefit is
recognized through a reduction of the current state income tax
provision. Such benefit amounted to approximately $636 in 1999,
$1,120 in 1998 and $876 in 1997.
-52-
Wheeling-Nisshin, Inc.
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(in thousands)
8. Employee Benefit Plans
Retirement Plan
The Company has a noncontributory, defined contribution plan which
covers eligible employees. The plan provides for Company
contributions ranging from 2% to 6% of the participant's annual
compensation based on their years of service. The Company's
contribution to the plan was $574 in 1999, $490 in 1998 and $415 in
1997.
Profit-Sharing Plan
The Company has a nonqualified profit-sharing plan for eligible
employees, providing for cash distributions to the participants in
years when income before income taxes is in excess of $500. These
contributions are based on an escalating scale from 5% to 15% of
income before income taxes. The profit-sharing expense, which
includes the profit-sharing contribution and the related employer
payroll taxes, was $2,090 in 1999, $6,290 in 1998 and $4,644 in
1997.
Postretirement Benefits
In December 1996, the Company adopted a defined benefit
postretirement plan which covers eligible employees. Generally, the
plan calls for a stated percentage of medical expenses reduced by
deductibles and other coverages. The plan is currently unfunded. The
postretirement benefit expense was $68 for 1999, 1998 and 1997.
Accrued postretirement benefits were approximately $271 and $203 at
December 31, 1999 and 1998, respectively.
9. Related Party Transactions
The Company has a supply agreement with Wheeling-Pittsburgh under
which the Company has agreed to purchase a specified portion of its
required raw materials through the year 2013. The Company purchased
$170,458, $164,473 and $24,533 of raw materials and processing
services from Wheeling-Pittsburgh in 1999, 1998 and 1997,
respectively. The amounts due Wheeling-Pittsburgh for such purchases
are included in due to affiliates in the accompanying balance
sheets.
In 1999, the Company received notice from Wheeling-Pittsburgh as to
a pricing dispute under the supply agreement for amounts owed for
raw material purchases during the third and fourth quarters of 1999.
On March 10, 2000, the Company reached a settlement in the amount of
approximately $2,000 with Wheeling-Pittsburgh over the pricing
dispute. The settlement amount has been recorded in the 1999
financial statements.
The Company also sells products to Wheeling-Pittsburgh. Such sales
totaled $1,175, $1,916 and $6,408 in 1999, 1998 and 1997,
respectively, of which $302 and $228 remained unpaid at December 31,
1999 and 1998, respectively, and are included in trade accounts
receivable in the accompanying balance sheets. The Company also
sells products to Unimast, Inc., an affiliate of
Wheeling-Pittsburgh. Such sales totaled $845, $333 and $435 in 1999,
1998 and 1997, respectively, all of which were paid at December 31,
1999 and 1998.
10. Legal Matters
The Company is a party to a dispute for final settlement of charges
related to the construction of its second production line. The
Company had claims asserted against it in the amount of
approximately $6,900 emerging from civil actions alleging delays on
the project. In connection with the dispute, the Company filed a
separate claim for alleged damages that it had sustained in the
amount of
-53-
Wheeling-Nisshin, Inc.
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(in thousands)
approximately $400.
The claims were litigated in the Court of Common Pleas of Allegheny
County, Pennsylvania, in a jury trial, which commenced on January 5,
1996. A verdict in the amount of $6,700 plus interest of $1,900 was
entered against the Company on October 2, 1996. After the verdict,
the plaintiffs requested the trial court to award counsel fees in
the amount of $2,422 against the Company. The motions for counsel
fees plus interest were granted by the court to the plaintiffs in
June 1997.
The Company filed appeals from the judgments to the Superior Court
of Pennsylvania in 1997. Post-judgment interest accrues during the
appeal period. Additionally, the Company has posted a bond
approximating $12,000 that will be held by the court pending the
appeals. On December 31, 1998, a three-judge panel of the Superior
Court ruled in favor of the Company's appeals vacating the October
2, 1996 adverse verdict and the award of counsel fees and remanded
the case for a new trial.
In 1999, the plaintiffs requested the Pennsylvania Supreme Court to
review the order of the Superior Court in its entirety, including
the vacating of the verdict and the awarding of counsel fees, and
their request was granted, on the limited questions whether the
trial court had jurisdiction to rule on the plaintiffs' motions for
counsel fees while the appeal was pending and whether the Superior
Court errored in ruling on the merits of the appeal without first
getting an explanatory statement from the trial court. The Company
intends to vigorously oppose efforts to have the Supreme Court
interfere with the Superior Court's favorable rulings as well as
vigorously defend against the plaintiffs' claims assuming a new
trial is held. The Company has been advised by its Special Counsel
that it has various legal bases for relief, if a new trial is held.
However, since litigation is subject to many uncertainties, the
Company is presently unable to predict the outcome of this matter.
In 1997, the Company recorded a liability in the amount of $2,500
related to these matters, which was capitalized in property, plant
and equipment as cost overruns in the accompanying balance sheets.
There is at least a reasonable possibility that the ultimate
resolution of these matters may have a material effect on the
Company's results of operations or cash flows in the year of final
determination. Any portion of the ultimate resolution for interest,
penalties and counsel fees will be charged to results of operations.
11. Fair Value of Financial Instruments
The estimated fair values and the methods used to estimate those
values are disclosed below:
Investments
The fair values of commercial paper, government bonds and
certificates of deposit were $40,220 and $48,844 at December 31,
1999 and 1998, respectively. These amounts were determined based on
the investment cost plus interest receivable at December 31, 1999
and 1998.
Long-Term Debt
Based on borrowing rates currently available to the Company for bank
loans with similar terms and maturities, fair value approximates the
carrying value.
-54-
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, Wheeling-Pittsburgh Corporation has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wheeling, State of West Virginia on March 24, 2000.
WHEELING-PITTSBURGH CORPORATION
By: /s/ James G. Bradley
-----------------------
James G. Bradley
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and
appoints James G. Bradley and Paul J. Mooney, and each of them singly, as his
true and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him, and his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
and supplements to this Registration Statement, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as full to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their substitute or substitutes may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, as
amended, this Registration Statement has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
/s/ James G. Bradley March 24, 2000
- ----------------------------------------------- ---------------
James G. Bradley, President and Chief Date
Executive Officer (Principal Executive Officer)
/s/ Paul J. Mooney March 24, 2000
- ----------------------------------------------- --------------
Paul J. Mooney, Executive Vice Date
President and Chief Financial Officer (Principal
Accounting Officer)
/s/ Ronald LaBow March 24, 2000
- ----------------------------------------------- --------------
Ronald LaBow, Director Date
/s/ Robert A. Davidow March 24, 2000
- ----------------------------------------------- --------------
Robert A. Davidow, Director Date
/s/ Marvin L. Olshan March 24, 2000
- ----------------------------------------------- --------------
Marvin L. Olshan, Director Date
-55-