SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996.
OR
/ / TRANSITION REPORT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from __________ to __________
Commission file number 1-2394
WHX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3768097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 EAST 59TH STREET 10022
NEW YORK, NEW YORK (ZIP CODE)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-355-5200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock, $.01 par value New York Stock Exchange
Series A Convertible Preferred Stock, $.10 par value New York Stock Exchange
Series B Convertible Preferred Stock, $.10 par value New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /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/
Aggregate market value of Common Stock held by non-affiliates of the
Registrant as of February 3, 1997 was $199.9 million, which value, solely for
the purposes of this calculation excludes shares held by Registrant's officers,
directors, and their affiliates. Such exclusion should not be deemed a
determination by Registrant that all such individuals are, in fact, affiliates
of the Registrant. The number of shares of Common Stock issued and outstanding
as of February 3, 1997 was 24,293,594, including 410,228 shares of redeemable
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive proxy statement to be filed pursuant to Regulation 14 A in connection
with the 1997 annual meeting of stockholders Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
WHX Corporation ("WHX"), (together with its consolidated subsidiaries, the
"Company"), indirectly through Wheeling-Pittsburgh Corporation ("WPC"), a wholly
owned subsidiary, and Wheeling-Pittsburgh Steel Corporation ("WPSC"), a wholly
owned subsidiary of WPC, is the ninth largest domestic integrated steel
manufacturer.
The Company and its subsidiaries were reorganized into a new holding
company structure on July 26, 1994. The steel-related businesses of the Company
(including WPSC) other than Unimast, Inc. ("Unimast") continue to be owned by
WPC, and the other businesses and assets of the Company including Unimast are
owned by WHX. Pursuant to the reorganization, WPC became a wholly owned
subsidiary of WHX. WHX, the new holding company, became the publicly held issuer
for all Common Stock, Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock of the Company. In addition, WHX guaranteed WPC's
outstanding 93/8% Senior Notes due 2003 (the "Senior Notes") as well as certain
other debt of WPC. The transactions were accounted for as a reorganization of
entities under common control. On the merger date, WHX had the same consolidated
net worth as WPC and its subsidiaries prior to the reorganization.
The Company, through two operating units of WPSC, the Steel Division and
Wheeling Corrugating Company ("Wheeling Corrugating"), and Unimast, shipped 2.3
million tons of steel products in 1996. In 1996, the Company reported sales of
$1.23 billion and net income of $.7 million (before preferred stock dividends of
$22.3 million). Results for 1996 reflect a strike by the United Steelworkers of
America ("USWA") which began October 1, 1996 and has continued to date. No steel
products are being produced or shipped at eight of the Company's plants located
in Ohio, Pennsylvania and West Virginia, subject to the work stoppage. The
Company experienced a net loss of $34.6 million in the strike affected fourth
quarter, and would expect to incur material losses for the duration of the work
stoppage. Although the Company is negotiating with the USWA to end the work
stoppage on terms satisfactory to the Company, there can be no assurance that
these negotiations will be successful, and it is unclear how long the work
stoppage will continue and the impact it will have on the Company. Depending on
the length of the work stoppage, the Company's financial condition and liquidity
will be materially adversely affected. The Company's operations, as discussed
herein, are materially affected by the work stoppage. The eight facilities
subject to the work stoppage represent approximately 80% of the tons shipped by
the Company on an annual basis. None of the Wheeling Corrugating facilities
outside the Ohio Valley or Unimast and Pittsburgh Canfield facilities are
involved in the work stoppage; however, the work stoppage at the eight
facilities affects the Company's ability to supply steel to these downstream
operations, which must now acquire their steel supply from external sources.
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,
steel framing and related accessories and other products used primarily by the
construction, highway and agricultural markets.
The Company's strategy is to pursue growth in profitability through the
manufacture and sale of value-added steel products. Its strategic initiatives
focus on:
Value-added steel products. The Company seeks to further expand into the
manufacture of processed steel products, such as coated and fabricated steel,
while reducing its reliance upon basic products, such as hot rolled sheet. The
Company believes such products provide higher margins than
<PAGE>
are found on basic steel products and are less sensitive to the steel industry
cycle. The Company's Wheeling-Nisshin Inc. joint venture ("Wheeling-Nisshin"),
for example, which commenced operations in 1988 and increased its capacity by
80% in 1993, currently produces over 600,000 tons annually of galvanized,
galvannealed and aluminized products and used approximately 354,300 tons of the
Company's cold rolled sheet in 1996, a strike affected year, and approximately
450,000 tons in 1995.
In recent years the Company negotiated several transactions that furthered
its strategy of expansion into higher value-added products. In March 1995 the
Company acquired Unimast, a leading manufacturer of steel framing and related
accessories for residential and commercial building construction with shipments
of approximately 130,000 tons of steel products in 1995 (nine months) and
191,000 tons in 1996. Unimast uses galvanized steel to manufacture steel framing
components for wall, floor and roofing systems, in addition to other roll formed
expanded metal construction accessories. Unimast also uses non-prime galvanized
substrate for a material portion of its requirements. As such, the Company has
an additional outlet to apply for further processing some portion of its
non-prime products. In December 1994, the Company acquired the Bowman Metal Deck
Division of Armco, Inc. ("Bowman"), which currently utilizes approximately
87,000 tons of the Company's cold rolled and hot dipped galvanized production
annually for conversion into specialized construction products. In June 1994,
the Company entered into a joint venture with Dong Yang Tinplate Ltd. ("Dong
Yang"), a leading South Korea-based tin plate producer, and Nittetsu Shoji
America, a U.S.-based tin plate importer, to construct and operate a
state-of-the-art tin coating line facility in Belmont County, Ohio with an
expected annual capacity of 250,000 tons. The Company owns 50% of the common
stock of the tin mill joint venture, Ohio Coatings Co., and will supply up to
100% of the steel substrate used by the facility. The facility was completed in
December 1996, and commenced shipments in January 1997. The Company will phase
out its existing tin mill production facilities. This will enable the Company to
convert more hot rolled sheet into tin-mill substrate as well as expand its line
of tin-mill product offerings. In December 1996 the Company purchased the assets
of Champion Metal Co. ("Champion"), with locations in Klamath Falls, Medford and
Brooks, Oregon. Champion is a rollform operation with approximately 7,000 tons
annual capacity and is part of Wheeling Corrugating.
The Company's Wheeling Corrugating and Unimast operations, its shipments
to Wheeling-Nisshin and the Company's tin plating, coating and cold rolling
operations accounted for 1.7 million tons, or approximately 74% of the Company's
shipments, in 1996.
Rationalization of fixed costs. The Company's strategy also focuses on the
minimization of fixed costs and maximization of capacity utilization throughout
the steel industry cycle. Since 1985, the Company's overall steelmaking capacity
has been reduced by 45%, or 2.0 million tons. As a result, the Company's
steelmaking operations are better balanced with its finishing operations,
resulting in capacity that is more efficiently employed. By having capacity at
its 80-inch hot strip mill in excess of its steelmaking capacity, the Company
seeks to take advantage of periods of strong steel demand by purchasing
semi-finished steel from third parties, while better absorbing its fixed costs
in periods of low demand by maintaining full utilization of its steel melting
facilities. The cost efficiencies afforded by this operating configuration
enhance the Company's ability to produce a low cost product. In furtherance of
this strategy, in September 1994 the Company entered into a joint venture with
ISPAT Mexicana, S.A.De C.V.("ISPAT"), whereby ISPAT sells to the joint venture
slabs it produces in Mexico and Canada, for conversion at the Company's
facilities in Steubenville, Ohio. The joint venture converts the slabs into hot
rolled products which are marketed by the Company to third-party trade
customers. The joint venture provides the Company greater flexibility in
supplying slabs to the Company's 80-inch hot strip mill in times of high steel
demand as well as during blast furnace outages.
Improving cost structure. The Company continually seeks to improve its
cost structure and product quality through capital expenditures, productivity
increases and business improvement teams which
2
<PAGE>
include its union employees. Since 1991, the Company has spent in excess of $439
million in capital expenditures to modernize and upgrade its facilities,
including an upgrade to its cold rolling mill at Yorkville, Ohio and the
modernization of its 80-inch hot strip mill at Steubenville, Ohio in 1993. The
Company spent approximately $83 million in 1995, which included approximately
$42 million of the $54 million reline of its No. 5 blast furnace in
Steubenville, Ohio. The reline increased the productivity of the No. 5 Blast
Furnace and provided the Company with the ability to produce 100% of the hot
metal necessary to satisfy caster production requirements from a two, rather
than three, blast furnace configuration. This allowed the Company to idle one
blast furnace and to possibly idle in the future its older and less efficient
coke ovens, which the Company believes will result in a material reduction in
future capital expenditure requirements and manning levels.
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, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996(1)
---- ---- ---- ---- ----
(Tons in millions)
<S> <C> <C> <C> <C> <C>
Company Raw Steel Production....... 2.35 2.26 2.27 2.20 1.78
Capability .................. 2.40 2.40 2.40 2.40 2.40
Utilization.................. 98% 94% 95% 92% 74%
Shipments.................... 2.1 2.3 2.4 2.5 2.3
Industry Raw Steel Production ..... 93.0 97.9 100.6 104.9 104.4
Capability .................. 113.1 109.9 108.2 112.4 116.2
Utilization ................. 82% 89% 93% 93% 90%
Shipments ................... 82.2 89.0 95.1 97.5 100.5
</TABLE>
- ------------------
(1) Results for 1996 were affected by a work stoppage at the Company's primary
steel-making facilities beginning October 1, 1996 and continuing to date.
The utilization rate for the nine months prior to the work stoppage was
98.9%
3
<PAGE>
Product Mix. The tables below reflect the historical product mix of the
Company's shipments. Increases in the percentage of higher value products have
been realized during the 1990's as (i) the operations of Wheeling Corrugating
were expanded, (ii) Wheeling-Nisshin's second coating line increased its
requirements of cold-rolled coils from WPSC, and (iii) the Company acquired
Unimast.
<TABLE>
<CAPTION>
HISTORICAL PRODUCT MIX
---------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------
1992 1993 1994 1995 1996(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
PRODUCT CATEGORY:
Hot Rolled Products............................ 31.5% 31.2% 31.4% 28.3% 26.1%
Semi-Finished ................................. -- 0.9 -- -- --
Higher Value-Added Products:
Cold Rolled Products-Trade................ 11.4 11.1 10.5 7.5 7.6
Cold Rolled Products -
Wheeling-Nisshin...................... 12.0 15.6 17.3 17.9 15.6
Coated Products........................... 17.1 16.0 16.6 15.8 13.3
Tin Mill Products......................... 10.2 8.8 7.2 6.7 7.0
Fabricated Products
(Wheeling Corrugating and
Unimast............................... 17.8 16.4 17.0 23.8 30.4
----- ----- ----- ----- -----
Total.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
OTHER DATA:
Higher Value-Added Products
as a percentage of total
shipments...................................... 68.5% 67.9% 68.6% 71.7% 73.9%
</TABLE>
(1) The allocation among product categories was affected by the work stoppage
at eight of the Company's facilities.
STEEL DIVISION
Hot Rolled Products. Hot rolled coils represent the least processed of the
Company's finished goods. Approximately 74% of the Company's 1996 production of
hot rolled coils was further processed internally into value-added finished
products such as cold-rolled coils. 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 and steel service centers and the automotive and
appliance industries. The converters/processors transform the hot-rolled coil
into a finished product such as pipe and tubing, while the service centers
typically slit or cut the material to size for resale to the end user.
From 1992 to 1996, the Company reduced its shipments of hot rolled products
from 31.5% to 26.1% of its total product mix. Management projects a further
reduction in such percentage as resources are deployed to expand the Company's
downstream operations.
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 a
variety of end users
4
<PAGE>
such as appliance or automotive manufacturers or further processed internally
into corrosion-resistant coated products including hot-dipped galvanized,
electrogalvanized, or tin line products. In recent years, the Company has
increased its cold rolled production to support increased sales to Wheeling-
Nisshin, the expansion of Wheeling Corrugating and third-party sales of its
hot-dipped and electrogalvanized products.
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 and to support the fabricating operations of
Wheeling Corrugating and Unimast. 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 hot dipped 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,
refrigerator backs and heating/air conditioning ducts. Approximately 53% of hot
dipped galvanized production tonnage is transferred to Wheeling Corrugating for
further processing. The Company's hot dipped galvanizing lines are older than
those of certain of its competitors and will require on going capital
expenditures to remain competitive. The Company sells electrogalvanized products
for application in the appliance and construction markets. Unimast uses
galvanized steel to manufacture steel framing components for wall, floor and
roofing systems.
Tin Mill Products. Tin mill products consist of blackplate and tinplate.
Blackplate is a cold rolled substrate (uncoated) the thickness of which is less
than .0142 inches and is utilized extensively in the manufacture of pails and
shelving. 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 a variety of container markets, the Company
also markets products for automotive applications, such as oil filters and
gaskets. The Company's participation in Ohio Coatings may enable it to expand
the Company's presence in the tin plate market. Ohio Coatings' $69 million tin
coating mill, which commenced operations in January 1997, will have a nominal
annual capacity of 250,000 net tons. Upon settlement of the work stoppage, the
Company will supply up to 100% of the substrate requirements of the joint
venture subject to quality requirements and competitive pricing. The Company and
Nittetsu Shoji America, a U.S. based tin plate importer ("NSA") will act as the
distributors of the joint venture's products, with the Company selling between
81% and 85% of production based on volume.
FABRICATED PRODUCTS
(WHEELING CORRUGATING AND UNIMAST)
Wheeling Corrugating is a leading fabricator of roll-formed products for
the construction, highway, and agricultural products industries. In conjunction
with the Company's business strategy of expanding its sales of higher
value-added products, Wheeling Corrugating has increased its shipments of
fabricated products by approximately 152% since 1986. Following the
establishment of its Lenexa, Kansas and Minneapolis, Minnesota locations,
Wheeling Corrugating expanded its regional operations, through acquisitions, in
Houston, Texas (1986), Fort Payne, Alabama (1989), Wilmington, North Carolina
(1993), Gary, Indiana and Warren, Ohio (1994). The regional presence of these
facilities has enabled Wheeling Corrugating to take advantage of low-cost barge
freight from the Company's Ohio Valley plants and to provide customers in the
outlying areas with competitive services through "just-in-time delivery." In
some of its product lines, Wheeling Corrugating has substantial market share and
therefore has increased opportunity to pursue higher profit margins. Wheeling
Corrugating intends to expand the manufacture, marketing and sale of products in
which it already has a significant market presence, including through potential
acquisitions and to take advantage of expected improvements in demand for
construction and highway products. The 1996 acquisition of Champion with three
locations in Oregon will assist the Company in expanding its market presence in
these areas. The
5
<PAGE>
Company believes that it would be difficult for a competitor to replicate
Wheeling Corrugating's geographical breadth.
In March 1995 the Company acquired Unimast, a leading manufacturer of steel
framing and related accessories for residential and commercial building
construction with shipments of approximately 130,000 tons of steel products in
1995 (nine months) and 191,000 tons in 1996. Unimast uses galvanized steel to
manufacture steel framing components for wall, floor and roofing systems, in
addition to other roll formed expanded metal construction accessories. Unimast
also uses non-prime galvanized substrate for a material portion of its
requirements, providing the Company an additional outlet for some portion of its
non-prime products. Unimast has facilities in Franklin Park, Illinois; Warren,
Ohio; Morrow, Georgia and Boonton, New Jersey.
The following table sets forth certain shipment information relating to
Wheeling Corrugating and Unimast major product categories:
NET TONS SHIPPED BY WHEELING CORRUGATING AND UNIMAST
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Construction Products....................... 157.0 146.2 151.7 335.4 404.3
Highway Products............................ 115.3 119.0 137.7 132.2 139.3
Agricultural Products....................... 91.8 100.7 113.6 125.7 142.8
Other....................................... 4.6 4.0 4.0 3.9 3.6
------ ----- ----- ----- -----
Total Net Tons Shipped........................ 368.7 369.9 407.0 597.2 690.0
====== ===== ===== ===== =====
</TABLE>
Construction Products. Construction products consist of roll-formed sheets,
which are utilized in the non-residential building market such as commercial,
institutional and manufacturing. They are classified into three basic
categories. Roof decking is a formed steel sheet, painted or galvanized product,
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. Unimast manufactures steel framing components for wall, floor and
roofing systems, in addition to other roll formed expanded metal construction
accessories.
Highway Products. Highway products consist of three classifications of
material that are designed to service the highway construction industry. Culvert
products are hot dipped galvanized sheets and coils which are produced
predominantly from a hot-rolled pickled substrate. Such products are marketed to
independent manufacturers of corrugated culvert pipe. Culvert pipe is spiral
formed or riveted corrugated pipe which is used for highway drainage
applications or in site preparation for homes, light buildings, and shopping
malls. Bridge form is roll-formed corrugated sheets which are swedged on both
ends and are utilized as concrete support forms in the construction of highway
bridges.
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. The products
can be manufactured from plain hot-dipped galvanized coils or from painted coils
employing a zinc-coated base steel. Historically, these products have been sold
primarily in rural
6
<PAGE>
areas. In recent years, however, such products have found increasing acceptance
in light commercial buildings.
Other. Other products include a variety of hardened and non-hardened cut
nails sold under the trademark Labelle(R). These products are used for a number
of general construction applications including hardwood flooring work, masonry
work and boat building. Hot-rolled sheet is employed as the base steel in the
manufacture of such products.
Fabricated products represented 40.6% or $501 million of the Company's net
sales in 1996, a strike-affected year, and 32.6% or $444 million of the
Company's net sales in 1995. Management intends to continue to expand fabricated
products through the acquisition of fabricating facilities that manufacture
products comparable or closely related to those of Wheeling Corrugating and
Unimast. The Company intends to continue to expand its emphasis on value-added
products.
WHEELING-NISSHIN
The Company has a 35.7% equity interest in Wheeling-Nisshin, which
commenced commercial operations in April 1988. Shipments by Wheeling-Nisshin of
hot dipped galvanized, galvannealed and aluminized products, principally to the
construction industry, have increased from 158,600 tons in 1988 to 665,787 tons
in 1996. Wheeling Nisshin products are marketed through trading companies and
its shipments are not consolidated into the Company's shipments.
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 354,300
tons or 15.6% of the Company's total tons shipped in 1996, a strike-affected
year, and approximately 450,000 tons or 17.9% in 1995. The increase in shipments
of cold-rolled sheet have reduced the Company's shipments of hot-rolled coils (a
lower-margin steel product) and is an integral part of the Company's strategy of
increasing its presence in higher value-added products.
In March 1993, Wheeling-Nisshin added a second hot-dipped galvanizing line,
which increased its capacity by 80%, to approximately 650,000 annual tons and
allows Wheeling-Nisshin to offer the lightest-gauge galvanized sheet products
manufactured in the United States for the construction, heating, ventilation and
air-conditioning ("HVAC") and after-market automotive applications.
OHIO COATINGS COMPANY
The Company has a 50% equity interest in Ohio Coatings Company ("OCC")
which completed construction of a $69 million tin coating mill in 1996 and
commenced commercial operations in January 1997. The Company's participation in
OCC may enable it to expand the Company's presence in the tin plate market. The
OCC tin coating mill has a nominal annual capacity of 250,000 net tons. Upon
settlement of the work stoppage, the Company may supply up to 100% of the
substrate requirements of the joint venture subject to quality requirements and
competitive pricing. The Company and Nittetsu Shoji America, a U.S. based tin
plate importer will act as the distributors of the joint venture's products. The
Company will market between 81% and 85% of OCC production, based on volume.
OTHER STEEL RELATED OPERATIONS OF THE COMPANY
The Company owns an electrogalvanizing facility which had revenues of $47.1
million while
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<PAGE>
providing an outlet for 60,500 tons of steel in 1996 and a facility that
produces oxygen and other gases used in the Company's steel-making operations.
The Company is the owner of coal reserves that have generated an average of $1.0
million in annual royalties from 1992 to 1996. The Company is also a 12 1/2%
equity partner in an iron ore mining partnership.
NON-STEEL RELATED INVESTMENTS OF THE COMPANY
In October 1994, WHX Entertainment Corp., a wholly owned subsidiary of WHX,
purchased a 50 percent interest in the operations of Wheeling-Downs Racing
Association ("Wheeling-Downs") from Sportsystems Corporation for $12.5 million.
Wheeling-Downs operates a racetrack and video lottery facility located in
Wheeling, West Virginia.
CUSTOMERS
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 40% of its net sales in
1994, 33.3% in 1995, and 30.6% in 1996. Wheeling-Nisshin was the only customer
to account for more than 10% of net sales. Wheeling-Nisshin accounted for 15.5%,
13.8% and 11.5% of net sales in 1994, 1995, and 1996, respectively.
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. As discussed
above, Wheeling Corrugating has acquired regional facilities to service an even
broader geographical area.
<TABLE>
<CAPTION>
PERCENT OF TOTAL NET TONS SHIPPED
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
Major Customer Category: 1992 1993 1994 1995 1996(1)
- ------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Construction........................................ 18% 17% 18% 22% 28%
Steel Service Centers............................... 36 33 32 27 24
Converters/Processors............................... 20 26 28 26 23
Agriculture......................................... 5 5 5 6 7
Containers.......................................... 9 7 6 6 6
Automotive.......................................... 7 6 6 5 5
Appliances.......................................... 3 3 3 4 4
Exports............................................. -- 1 -- 1 --
Other............................................... 2 2 2 3 3
--- --- --- --- ----
Total.......................................... 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
- ------------------
(1) The allocation among customer categories was affected by the work stoppage
at eight of the Company's facilities.
The Company's shipments historically have been concentrated within six
major market segments. 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. Set forth below is a description
of the Company's business with its major customer categories.
Construction. The Company's shipments to the construction industry are
heavily influenced by the
8
<PAGE>
sales of Wheeling Corrugating and Unimast. Wheeling Corrugating services the
non-residential and agricultural building and highway industries, principally
through shipments of hot dipped galvanized and painted cold rolled products.
With its acquisition during the 1980's and early 1990's of regional facilities,
Wheeling Corrugating has doubled its shipments and has been able to market its
products into broad geographical areas, which the Company expects will mitigate
the effects of regional economic downturns in the construction business. In
December 1996 the Company, through Wheeling Corrugating, acquired the assets of
Champion which has three locations in Oregon. Unimast is a leading manufacturer
of steel framing and related accessories for residential and commercial building
construction. The acquisition of Unimast in March 1995 increased the Company's
shipments to the construction industry and its ability to market its products to
broad geographic areas. Unimast has facilities located in Franklin Park,
Illinois; Warren, Ohio; Morrow, Georgia and Boonton, New Jersey.
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 Company's shipments to the converters/processors
market as a percentage of total shipments have increased from 20% in 1992 to 23%
in 1996. This growth is principally attributable to the increase in shipments of
full hard and fully finished 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.
Agriculture. The Company's shipments to the agricultural market are
principally sales of Wheeling Corrugating roll-formed, corrugated sheets which
are used as roofing and siding in the construction of barns, farm machinery
enclosures and light commercial buildings.
Containers. The vast majority of 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.
Automotive. Unlike the majority of its competitors, the Company is not
heavily dependent on shipments to the automotive industry. However, the Company
has established a variety of 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. A
third niche has been the Company's participation in painted electrogalvanized
products for auto draft stripping applications.
RAW MATERIALS
The Company has a 12.5% ownership interest in Empire Iron Mining
Partnership ("Empire") 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.
9
<PAGE>
Interest in related ore reserves as of December 31, 1996, is estimated to be
22.5 million gross tons. In 1996, the Company consumed approximately 1.65
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
1997 from suppliers in North America.
In November 1993, the Company sold the operating assets of its coal company
to an unrelated third party. The Company also entered into a long term supply
agreement with such third party to provide the Company with a substantial
portion of the Company's coal requirements at competitive prices. The Company's
operations require a substantial amount of coking coal.
The Company currently produces all of its coke requirements and typically
consumes generally all of the resultant by-product coke oven gas. In 1996,
approximately 1.6 million tons of coking coal were consumed in the production of
blast furnace coke by the Company. Due to the increased production of the
recently relined No. 5 blast furnace, the Company idled one of its three blast
furnaces and may possibly idle its older, less efficient coke ovens. The Company
may continue to sell its excess coke and coke oven by-products to third-party
trade customers.
Material amounts of other raw materials, including limestone, oxygen,
natural gas and electricity, are required. These raw materials are readily
available and are purchased on the open market. The Company is presently
dependent on external scrap for approximately 8% of its steel melt. The cost of
these materials has been susceptible in the past to price fluctuations, but
worldwide competition in the steel industry has frequently limited the ability
of steel producers to raise finished product prices to recover higher material
costs. Certain of the Company's raw material supply contracts provide for price
adjustments in the event of increased commodity or energy prices.
BACKLOG
Order backlog was 158,751 net tons at December 31, 1996, compared to
400,624 tons at December 31, 1995. The low level of order backlog is due to the
continuing work stoppage at eight plants in Ohio, Pennsylvania and West
Virginia. Since no steel products are being produced or shipped at these
facilities there can be no assurance that related orders will be shipped.
Wheeling Corrugating's backlog of 69,360 net tons are included in the backlog at
December 31, 1996 and are expected to be shipped during the first half of 1997.
The Company intends to vigorously pursue customers lost to competitors during
the work stoppage.
CAPITAL EXPENDITURES
The Company's capital expenditures (including capitalized interest) for
1996 were approximately $35.4 million, including $6.8 million on environmental
projects. Capital expenditures in 1996 were lower than in recent years due to
the work stoppage beginning October 1, 1996 and continuing to date. From 1991 to
1996, such expenditures aggregated approximately $439 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. Since 1985, the
Company's capital expenditure program has been and continues to be aimed at
maintaining its core production capabilities and selectively upgrading product
characteristics. 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. In particular, the
quality improvements completed at the Allenport cold-rolling facility in 1992
and the installation of automatic gauge controls at the Yorkville tandem mill in
1993 have enhanced productivity and improved the
10
<PAGE>
quality of substrate provided to Wheeling-Nisshin and other customers.
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 1997 from cash on hand and funds
generated by operations. Pending the resolution of the work stoppage, the
Company has indefinitely delayed substantially all capital expenditures at the
plants being picketed.
ENERGY REQUIREMENTS
During 1996 coal constituted approximately 78% of the Company's total
energy consumption, natural gas 18% and electricity 4%. 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 employment of the Company averaged 5,706 employees during 1996, of
which 4,090 were represented by the USWA, and 106 by other unions. The remainder
consisted of 1,081 salaried employees and 429 non-union operating employees.
The Company's labor agreement with the USWA expired on October 1, 1996. The
Company and union were unable to agree on terms of a new labor agreement. The
USWA is engaged in a work stoppage at eight plants located in Ohio, Pennsylvania
and West Virginia. No steel products are being produced or shipped at these
facilities. Approximately 70% of the Company workforce is covered by the
collective bargaining agreement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources."
WPC, as a signatory to the collective bargaining agreement between WPSC and
the USWA, is liable for all obligations under the collective bargaining
agreement, including 100% of WPSC's obligations to provide medical insurance,
life insurance, disability and surviving spouse retirement benefits to WPSC's
retired employees and their dependents ("WPSC Retiree Benefits"). WHX is
contingently liable with respect to a portion of such benefits. WHX also is
bound by certain agreements with the USWA relating to (a) restrictions on
dividends payable by WPSC to the extent of 50% of the cumulative net income of
WPSC since January 3, 1991, (b) tax sharing arrangements between WHX and WPSC
and (c) a right of first refusal held by the respective employees of WPSC to
purchase, generally, certain of WPSC's facilities in the event of the proposed
sale of such facilities.
In February 1997 the Company announced that John R. Scheessele had joined
the Company to replace James L. Wareham as President of WHX, WPC and WPSC and as
Chairman of the Board and Chief Executive Officer of WPSC. In connection
therewith, Mr. Scheessele was also elected to the Board of Directors of WHX and
WPSC. Mr. Scheessele is a former President of WCI Steel. James L.
Wareham left the Company on an amicable basis.
COMPETITION
The steel industry is cyclical in nature and has been marked historically
by overcapacity, resulting in intense competition among domestic and foreign
producers exporting to the United States. The market for steel in the United
States is supplied principally by domestic integrated steel producers, domestic
steel mini-mills and foreign steel producers. The integrated producers typically
operate large plants with annual capacities of one million tons or more. These
plants produce steel from a combination of iron ore, coke and steel scrap using
blast furnaces and basic oxygen furnaces. Steel mini-mills utilize electric
furnaces and are able to produce steel utilizing primarily ferrous scrap metal
11
<PAGE>
as their basic raw material and serve regional markets. Until recently,
technology constraints limited mini-mills' ability to produce sheet-steel
products. However, several mini-mills now produce sheet products based on a
technology known as thin-slab casting. Mini-mills use steel scrap as a primary
raw material. The price of such scrap fluctuates; during periods when scrap
prices are at a high point, the operating costs of mini-mills may rise in
relation to those of integrated mills, such as the Company.
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. Steel producers from emerging economic powers such as Korea, Taiwan, and
Brazil have also recognized the United States as a target market.
Total annual steel consumption in the United States has fluctuated between
88 million and slightly over 100 million tons since the early 1980s. A number of
steel substitutes, including plastics, aluminum, composites and glass, have
reduced the growth of domestic steel consumption.
Steel imports as a percentage of domestic apparent consumption, excluding
semi-finished steel, have been approximately 20% in 1994, 18% in 1995, and 19%
in 1996. 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. However, the strong performance of the U.S.
economy, relative to weaker economies in Europe and Japan, has resulted in
increased imports in recent years.
ITEM 2. PROPERTIES
The Company has one raw steel producing plant and various other finishing
and fabricating facilities. The Steubenville plant is an integrated steel
producing facility located at Steubenville and Mingo Junction, Ohio and
Follansbee, West Virginia. It is the Company's only raw steel producing
facility. Facilities include a sinter plant, coke oven batteries that produce
all coke requirements, three blast furnaces (two operating), 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
plant. The coke plant is being operated by management employees to protect the
ovens during the work stoppage. The Steubenville plant primarily produces
hot-rolled products, which are either sold to third parties or shipped to other
affiliated facilities for further processing.
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<PAGE>
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, OPERATIONS AND CAPACITY TONS/YEAR MAJOR PRODUCTS
Allenport, Pennsylvania:
Continuous pickler, tandem mill,
temper mills and annealing 950,000 Cold rolled sheets
Beech Bottom, West Virginia: Paint line
and various roll forming equipment 120,000 Painted steel in
coil form,
structural forms and
decking
Canfield, Ohio: Electrogalvanizing line,
paint line, ribbon and oscillating
rewind slitters 65,000 Electrolytic
galvanized sheet and
strip
Martins Ferry, Ohio: Temper mill, zinc coating
lines and roll forming equipment 750,000 Hot dipped
galvanized sheets
and coils and formed
steel products
Wheeling, West Virginia: Shotblaster,
nailers and heat treating 5,000 Cut nails
Yorkville, Ohio: Continuous pickler,
tandem mill, temper mill and
annealing lines 660,000 Black plate and cold
rolled sheets
Wheeling Corrugating fabricates products at Fort Payne, Alabama;
Houston, Texas; Lenexa, Kansas; Louisville, Kentucky; Minneapolis, Minnesota;
Warren, Ohio; Gary, Indiana; Wilmington, North Carolina and Klamath Falls,
Medford and Brooks, Oregon. The Fort Payne, Houston and Wilmington facilities
were acquired in 1986, 1989 and 1993, respectively. The Gary and Warren
facilities were acquired in 1994. The Oregon facilities were acquired in 1996.
In addition, the Company operates two plants located in Grand Junction, Colorado
and Stoughton, Wisconsin that fabricate culvert pipe from sheet metal.
The Company maintains five regional sales offices for flat-rolled and
tin mill products and nine sales offices and/or warehouses for Wheeling
Corrugating products.
Unimast, acquired in March 1995, has facilities located at Franklin
Park, Illinois; Warren, Ohio; Morrow, Georgia and Boonton, New Jersey.
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.
All of the above facilities and substantially all of the other real
property of the Company are owned in fee by the Company (exclusive of coal lands
held by subsidiaries or corporations in which the Company has an interest) and
are subject to the first lien that secures the $10.9 million face amount
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(as of December 31, 1996) of Tax Benefit Transfer Letters of Credit issued to
support the sale of tax benefits associated with the construction of the slab
caster located at the Company's Steubenville facility.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
The Company, as are other steel 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 $8.7 million, $5.9 million and $6.8 million for 1994, 1995 and 1996,
respectively. The Company anticipates spending approximately $47.0 million on
major environmental projects through the year 2000. Due to the possibility of
unanticipated factual or regulatory developments, the amount of future
expenditures may vary.
The Company has been identified as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund") or similar state statues at seven 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 one of
these sites will be between $1.0 million and $4.0 million. At four other sites
the costs are estimated to aggregate up to $700,000. The Company lacks
sufficient information regarding the remaining sites to form an estimate. The
Company is currently funding its share of remediation costs. Based upon all
available information, the Company does not anticipate that assessment and
remediation costs resulting from the Company's potentially responsible party
status will have a material adverse effect on its financial condition or results
of operations. However, as further information comes into the Company's
possession, it will continue to reassess such evaluations. Non-current accrued
environmental liabilities totaled $7.3 million at December 31, 1995 and $7.8
million at December 31, 1996. These liabilities were determined by the Company
when the Company reorganized under the federal bankruptcy laws in January 1991,
based on all available information, including information provided by third
parties, and existing laws and regulations then in effect, and are reviewed and
adjusted quarterly as new information becomes available.
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.
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. In
November 1996 the EPA proposed more stringent revisions to the air quality
standards for particulate matter. The costs associated with anticipated
compliance with Clean Air Act standards for the immediate future in the amount
of $13.8 million have been included in anticipated capital expenditure
requirements.
In March 1993 the EPA 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. The parties
have entered into a consent decree settling the civil penalties related to this
matter for $.7 million. The Company has accrued for the cost of this settlement.
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
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<PAGE>
Follansbee facility. The Company and the EPA entered into a consent decree in
October 1989 whereby soil and groundwater testing and monitoring procedures are
required. The full extent and cost of remediation cannot be ascertained until
surveying and sampling are completed in accordance with the approved plan. The
Company has accrued for the estimated cost of closing the surface impoundment.
In June of 1995 the USEPA informally requested corrective action affecting other
areas of the Follansbee facility. The Company has actively contested the Initial
Administrative Order (formally issued as USEPA Doc. # RCRA-III-080-CA, September
27, 1996) by invoking the Dispute Resolution provision of the October 1989
Consent Order. (Civil Action No. 85-0124-W).
On December 20, 1995 the Department of Justice notified the Company of
its intention to bring proceedings seeking civil penalties for alleged
violations of the Clean Water Act (1991-94) and Resource Conservation and
Recovery Act ("RCRA") (1990-91) at the Company's Follansbee facility. Suit was
filed February 5, 1996 in the US District Court, Eastern District of West
Virginia (Civil Action #5-96CV20). A consent decree has been negotiated settling
this matter for $200,000. The Company has accrued an appropriate reserve for the
potential cost of this claim.
By letter dated March 15, 1994 the Ohio Attorney General advised the
Company of its intention to file suit on behalf of the Ohio EPA for alleged
hazardous waste violations at the Company's Steubenville, Mingo Junction,
Martins Ferry and Yorkville facilities. In subsequent correspondence the State
of Ohio demanded a civil penalty of approximately $.3 million in addition to
injunctive relief. The injunctive relief consists of remedial activities at each
facility aggregating less than $125,000, the initiation of a waste minimization
program at the affected facilities and a company wide compliance assessment. The
Company is in the process of conducting settlement negotiations which would
include the payment of penalties below the amount requested. The Company has
accrued an appropriate reserve for this claim.
The Company is currently operating in substantial compliance with three
consent decrees (two with the EPA and one with 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 and petition to terminate them
will be filed in the near future.
The Company is aware of several environmental issues resulting from
operations, which include leakage from 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. The Company does not believe the resolution of these issues or
other litigation occurring in the normal course of business will have a material
adverse effect on the financial condition or results of operations of the
Company.
Based upon 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
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.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NOT APPLICABLE
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Pursuant to a reorganization of the Company into a new holding company
structure, WPC has become a wholly-owned subsidiary of WHX and continues to own
the majority of the steel-related businesses of the Company other than Unimast,
and WHX, the new holding company, owns the other businesses and assets of the
Company including Unimast. WHX is the publicly held issuer for all of the Common
Stock, Series A Convertible Preferred Stock and Series B Convertible Preferred
Stock presently outstanding. In addition, WHX has guaranteed WPC's outstanding
public debt, the 93/8% Senior Notes and certain privately held debt.
The number of shares of Common Stock issued and outstanding as of
February 3, 1997 was 24,293,594, including 410,228, shares of redeemable common
stock. The warrants to purchase Common Stock, issued on January 3, 1991, expired
on January 3, 1996. Approximately 1,956,000 shares of common stock were issued
pursuant to the exercise of warrants. In 1995 and 1996, the Company purchased
2,025,000 shares and 2,940,316 shares, respectively of common stock on the open
market. The purchased shares have been retired except for 156,900 shares being
held as Treasury shares at December 31, 1996.
The prices set forth in the following table represent the high and low
sales prices for the Company's Common Stock:
COMMON STOCK
------------
HIGH LOW
---- ---
1995
First Quarter $14.625 $9.625
Second Quarter 11.750 10.250
Third Quarter 13.250 11.250
Fourth Quarter 11.500 10.000
1996
First Quarter 14.000 10.375
Second Quarter 12.250 8.875
Third Quarter 10.875 8.500
Fourth Quarter 10.000 7.375
As of February 3, 1997, there were approximately 12,658 holders of
record of WHX's Common Stock.
The Company intends to retain any future earnings for working capital
needs and to finance capital improvements and presently does not intend to pay
cash dividends on the Common Stock for the foreseeable future. In addition, the
terms of the Company's senior debt place certain limitations on the Company's
ability to pay cash dividends.
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<TABLE>
<CAPTION>
ITEM 6 SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
FIVE-YEAR STATISTICAL (THOUSANDS OF DOLLARS)
- ------------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------
PROFIT AND LOSS:
<S> <C> <C> <C> <C> <C>
Net sales $929,786 $1,046,795 $1,193,878 $1,364,614 1,232,696
Cost of products sold (excluding
depreciation and profit sharing) 815,801 876,814 979,277 1,147,899 1,096,229
Depreciation 54,931 57,069 61,514 67,700 68,956
Profit sharing -- 4,819 9,257 6,718 --
Selling, administrative and general expense 67,105 58,564 64,540 66,531 70,971
Restructuring charges 7,098 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (15,149) 49,529 79,290 75,766 (3,460)
Interest expense on debt 21,659 21,373 22,581 22,830 25,963
Other income 3,181 11,965 17,925 47,139 25,974
B & LE settlement -- -- 36,091 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes
and extraordinary items (33,627) 40,121 110,725 100,075 (3,449)
Tax provision (benefit) -- 9,400 24,360 19,014 (4,107)
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary items (33,627) 30,721 86,365 81,061 658
Extraordinary items -- (36,953) (9,984) (3,043) --
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (33,627) (6,232) 76,381 78,018 658
Preferred stock dividends -- 4,713 13,177 22,875 22,313
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $(33,627) $(10,945) $63,204 $55,143 $(21,655)
==============================================================================================================================
Net income (loss) per share
Operations $ (1.85) $ .02 $ 2.54 $2.18 $(.82)
Extraordinary -- (1.45) (.35) (.11) --
- ------------------------------------------------------------------------------------------------------------------------------
Net $ (1.85) $ (.43) $ 2.19 $2.07 $(.82)
==============================================================================================================================
Average number of common shares
outstanding (in thousands) 18,194 25,452 28,833 26,661 26,287
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
Cash, cash equivalent and short term investments $ 8,658 $279,856 $401,606 $439,493 $482,582
Working capital 104,728 398,051 524,051 541,045 491,956
Property, plant and equipment - net 752,518 748,673 768,284 793,319 755,412
Plant additions and improvements 67,318 73,652 82,020 83,282 35,436
Total assets 1,116,732 1,491,600 1,729,908 1,796,467 1,718,779
- ------------------------------------------------------------------------------------------------------------------------------
Long-term debt 213,826 346,823 289,500 285,676 268,198
Stockholders' equity 230,696 432,283 692,254 768,405 714,437
- ------------------------------------------------------------------------------------------------------------------------------
NUMBER OF STOCKHOLDERS OF RECORD:
Common 8,893 8,648 8,729 13,408 12,697
Series A Convertible Preferred -- 30 27 28 42
Series B Convertible Preferred -- -- 22 48 62
- ------------------------------------------------------------------------------------------------------------------------------
EMPLOYMENT
Employment costs $329,388 $322,985 $328,584 $343,416 $321,347
Average number of employees 5,684 5,381 5,481 5,996 5,706
- ------------------------------------------------------------------------------------------------------------------------------
PRODUCTION AND SHIPMENTS:
Raw steel production - tons 2,351,000 2,258,000 2,270,000 2,199,000 1,781,894
Shipments of steel products - tons 2,068,000 2,251,000 2,397,000 2,515,000 2,267,231
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
WHX CORPORATION
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NOTES TO FIVE-YEAR STATISTICAL SUMMARY
The Company recorded a fourth quarter 1992 restructuring charge of $7.1
million to reflect the elimination of 156 salaried positions through a
separation incentive program. The job eliminations represented 13% of the
salaried workforce.
In 1993 the Company recorded extraordinary charges of $37.0 million, net of
taxes, for premiums paid on early debt retirement and to provide for coal
retiree medical benefits.
The Company adopted Statement of Financial Accounting Standard No. 112,
"Accounting for Postemployment Benefits" ("SFAS 112") as of January 1, 1994.
SFAS 112 establishes accounting standards for employers who provide benefits to
former or inactive employees after employment but before retirement. Those
benefits include, among others, disability, severance and workers' compensation.
The Company recorded a charge of $12.2 million ($10.0 million net of tax) in the
1994 first quarter as a result of the cumulative effect on prior years of
adoption of the change in accounting method.
The Company and its subsidiaries were reorganized into a new holding
company structure on July 26, 1994. The transactions were accounted for as a
reorganization of entities under common control. On the merger date, WHX had the
same consolidated net worth as WPC and its subsidiaries prior to the
reorganization.
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 has continued to date at eight of its plants in Ohio, Pennsylvania and West
Virginia. No steel products have been 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.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
As set forth below, the Company's 1996 results were impacted by the
strike which commenced on October 1, 1996 and has continued to date. The Company
reported a $34.6 million net loss in the fourth quarter as a result of the work
stoppage. The Company further anticipates that it will incur material losses for
the duration of the work stoppage.
1996 COMPARED TO 1995
Net sales for 1996 totaled $1,232.7 million on shipments of steel
products of 2.3 million tons. Net sales for 1995 totaled $1,364.6 million on
shipments of 2.5 million tons. The decrease in sales and tons shipped is
primarily attributable to the work stoppage at eight plants located in Ohio,
Pennsylvania and West Virginia. Production and shipment of steel products at
these plants ceased on October 1, 1996 and the work stoppage has continued to
date. Shipments in the fourth quarter decreased to 253,302 tons compared to
622,822 tons shipped in the fourth quarter of 1995. Also, steel prices declined
3.7% in 1996 compared to the prior year, but were partially offset by a higher
value-added product mix.
Cost of goods sold increased from $456 per ton shipped in 1995 to $484
in 1996. This increase reflects the volume effect of lower production on fixed
cost absorption and higher levels of external steel purchases due to the work
stoppage, higher costs for coal, ore and natural gas and a higher value-added
product mix. The operating rate for the nine months prior to the work stoppage
was 98.9%, but dropped to 74.0% for the full year of 1996 compared to 91.6% in
1995. Raw steel production is 100% continuous cast.
Depreciation expense increased to $69.0 million in 1996 from $67.7
million in 1995. Increased depreciation attributable to higher amounts of
depreciable property were partially offset by lower levels of raw steel
production and its effect on units of production depreciation methods.
No profit sharing was earned in 1996 as a result of the work stoppage
and its impact on pre-tax income. Profit sharing expense totaled $6.7 million in
1995.
Selling, administrative and general expense increased 6.7% to $71.0
million in 1996 from $66.5 million in 1995. The increase is due to inclusion of
Unimast for a full year in 1996, compared to nine months in 1995 and a favorable
local tax settlement recorded in 1995.
Interest expense increased to $26.0 million in 1996 from $22.8 million
in 1995 due to a reduction in capitalized interest from $6.4 million in 1995 to
$2.5 million in 1996. The reduction in capitalized interest reflects lower
amounts of capital expenditures and shorter construction periods in 1996.
Other income decreased to $26.0 million in 1996 from $47.1 million in
1995. The decrease reflects a $12.8 million decrease in interest and investment
income. The 1995 other income also included gain on the sale of Teledyne common
stock and gain on the sale of the assets of WP Radio.
The tax provision (benefit) for 1996 and 1995 were a $4.1 million
benefit and $19.0 million provision, respectively, before recording a tax
benefit related to extraordinary charges in 1995. The tax provision (benefit)
were calculated on an alternative minimum tax basis. The 1995 provision includes
the effect of recognizing $58.0 million of deferred tax assets, but excludes the
benefit of applying $42.1 million of prereorganization tax benefits, which are
direct additions to paid-in-capital.
There were no prereorganization tax benefits applied in 1996.
19
<PAGE>
Income before extraordinary charges in 1995 totaled $81.1 million, or
$2.18 per share of common stock. The 1995 extraordinary charge of $4.7 million
($3.0 million net of tax) reflects additional liability for coal miner retiree
medical expense attributable to the allocation of additional retirees to the
company by the Social Security Administration.
Net income in 1996 totaled $658,000, or a loss of $0.82 per share of
common stock (after deduction of preferred stock dividends). Net income in 1995
totaled $78.0 million, or $2.07 per share of common stock.
1995 COMPARED TO 1994
Net sales for 1995 totaled $1,364.6 million on shipments of steel
products of 2.5 million tons, compared to $1,193.9 million on shipments of 2.4
million tons in 1994. The 14.3% increase in net sales reflects the acquisition
of Unimast in March 1995, a 3.0% increase in steel prices and a higher
value-added product mix. Average product prices increased by 9.0% from $498 per
ton shipped to $543.
Cost of goods sold increased from $408 per ton shipped in 1994 to $456
in 1995. This increase reflects a higher value-added product mix, higher prices
for ore, scrap and purchased slabs, higher employment costs and lower
productivity primarily attributable to the planned blast furnace relining.
The operating rate was 91.6% in 1995 compared to 94.6% in 1994. Raw
steel production was 100% continuous cast in 1995 and 1994.
Depreciation expense increased 10.1% to $67.7 million in 1995, compared
to 1994, due to increased amounts of depreciable property and the inclusion of
Unimast.
Profit sharing expense decreased from $9.3 million to $6.7 million in
1995, compared to 1994, based on terms of the collective bargaining agreement
and a similar program for non-bargaining employees.
Selling, administrative and general expense increased 3.1% to $66.5
million in 1995, from $64.5 million in 1994, due primarily to the inclusion of
Unimast, partially offset by reduced consulting fees.
Interest expense increased to $22.8 million in 1995 from $22.6 million
in 1994. The increase is due to less capitalized interest, partially offset by
lower levels of debt outstanding. Capitalized interest totaled $6.4 million in
1995, compared to $8.4 million in 1994.
Other income increased to $47.1 million in 1995 from $17.9 million in
1994. This increase in other income reflects a $25.1 million increase in
interest and investment income, realized gains from the sale of 2.2 million
shares of common stock of Teledyne, and a strong recovery in the bond market
compared to 1994. The Company also recorded a $6.7 million gain on the sale of
the assets of WP Radio.
The tax provisions for 1995 and 1994 were $19.0 million and $24.4
million, respectively, before recording the tax benefit related to extraordinary
charges. The tax provisions were calculated on an alternative minimum tax basis.
The 1995 provision includes the effect of recognizing $58.0 million of deferred
tax assets, but excludes the benefit of applying $42.1 million of
pre-reorganization tax benefits, which are direct additions to paid-in-capital.
Direct additions to paid-in-capital in 1994 totaled $17.6 million.
20
<PAGE>
Income before extraordinary charges in 1995 totaled $81.1 million, or
$2.18 per share of common stock, compared to $86.4 million, or $2.54 per share
of common stock in 1994 (including $36.1 million or $.93 per share of common
stock related to the settlement of the B&LE anti-trust litigation).
The 1995 extraordinary charge of $4.7 million ($3.0 million net of tax)
reflects additional liability for coal miner retiree medical expense
attributable to the allocations of more retirees to the Company by the Social
Security Administration. The 1994 charge for change in accounting method of
$12.2 million ($10.0 million net of tax) reflects the adoption of SFAS 112.
Net income totaled $78.0 million or $2.07 per share of common stock in
1995, compared to net income of $76.4 million or $2.19 per share of common stock
in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operating activities for 1996 totaled $126.8
million. Short term trading investments and related short term borrowings are
reported as cash flow from operating activities. Working capital accounts
(excluding cash, short term investments, short term borrowings and current
maturities of long-term debt) provided $54.5 million of funds, principally due
to a work stoppage at eight of the Company's facilities. Accounts receivable
decreased $50.3 million (excluding a $22 million payment on trade receivable
securitization transactions presented separately as a financing activity) due to
a lower level of sales during the continuing labor dispute. Inventories valued
principally by the LIFO method for financial reporting purposes, totaled $215.4
million at December 31, 1996, a decrease of $70.5 million from the prior year
end. Trade payables and payroll related accruals decreased $66.2 million due to
lower operating levels.
In August 1994 the Company 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 its affiliates,
Wheeling Construction Products, Inc. and Pittsburgh- Canfield Corporation. The
agreement expires in August 1999. In July 1995, WPSC amended such agreement to
sell an additional $20 million on similar terms and conditions. In October 1995,
WPSC entered into an agreement to include the receivables generated by Unimast,
in the pool of accounts receivable sold. Accounts receivable at December 31,
1996, exclude $45 million representing accounts receivable sold with recourse
limited to the extent of uncollectible balances. Fees of $4.3 million paid by
the Company under this agreement were based upon a fixed rate set on the date
the initial $45 million of accounts receivable were sold and variable rates on
subsequent sales that range from 5.76% to 8.25% of the outstanding amount of
receivables sold. Based on the Company's collection history, the Company
believes that credit risk associated with the above arrangement is immaterial.
However, as the work stoppage continues, the Company may not be able to generate
sufficient trade accounts receivable to maintain the receivables securitization
agreements. If the securitization agreements are terminated, collection of the
sold receivables would be used to repay the investors.
For the year ended December 31, 1996, the Company spent $35.4 million
(including capitalized interest) on capital improvements, including $6.8 million
on environmental control projects. Capital expenditures were lower than in
recent years due to the work stoppage. Non-current accrued environmental
liabilities totaled $7.3 million at December 31, 1995 and $7.8 million at
December 31, 1996. These liabilities were determined by the Company when the
Company reorganized under the federal bankruptcy laws in January 1991, based on
all available information, including information provided by third parties, and
existing laws and regulations then in effect, and are reviewed and adjusted
quarterly as new information becomes available. Based upon all available
information , the Company does not anticipate that assessment and remediation
costs resulting from the Company's status as a potentially responsible party
will have a material adverse effect on its financial condition or results of
operations. However, as further information comes into the Company's possession,
it will
21
<PAGE>
continue to reassess such evaluations. The Clean Air Act Amendment of 1990 is
expected to increase the Company's costs related to environmental compliance;
however, such an increase in cost is not reasonably estimable, but is not
anticipated to have a material adverse effect on the consolidated financial
condition of the Company.
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 exceed depreciation expense and represent a
material use of operating funds. Additionally, the Company invested $16.5
million in 1996 in its newly formed joint venture, Ohio Coatings Company, which
completed constructing a $69 million tin coating facility. The Company
anticipates funding its capital expenditures in 1997 from cash on hand and funds
generated from operations.
On December 28, 1995, WPSC entered into a new Revolving Credit Facility
("RCF") with Citibank, N.A. as agent. The RCF provides for borrowing for general
corporate purposes of up to $125 million. The RCF expires May 3, 1999. Interest
is calculated at a Citibank prime rate plus .5% and/or a Eurodollar rate plus
2.0%. Borrowings under the RCF are secured primarily by 100% of WPSC's eligible
inventory and requires that WPSC maintain a specified level of tangible net
worth. The RCF has certain financial covenants restricting indebtedness, liens
and distributions. There were no borrowings under the RCF at December 31, 1996.
The RCF has been amended to provide the Company with additional flexibility
under financial and other covenants of the RCF.
The collective bargaining agreement between the USWA and the Company
expired on October 1, 1996. The USWA initiated a strike on October 1, 1996, at
eight of the Company's steel production and/or finishing facilities in Ohio,
Pennsylvania and West Virginia. No steel products are being produced at or
shipped from these facilities. These facilities represent 80% of the tonnage
shipped by the Company on an annual basis. The Company reported a net loss of
$34.6 million for financial reporting purposes in the fourth quarter as a result
of the strike, and anticipates material losses will continue for the duration of
the strike. As of December 31, 1996, the Company had cash and short-term
investments in excess of $400 million. The Company anticipates its net cash flow
from operations will be negative in the first quarter. Depending on the duration
of the strike and its effects on the Company's operations, the Company's
Accounts Receivable Securitization Facility may liquidate pursuant to its terms.
The Company is negotiating an amendment to certain covenants contained in its
$125 million RCF, under which there currently are no borrowings outstanding, to
take into account the effects of the strike. The Company believes it has
sufficient liquidity to withstand the effect of a prolonged work stoppage
irrespective of the availability of such facilities. However, the Company's
Accounts Receivable Securitization Facility and RCF are expected to provide
funds for joint venture investment and working capital reinvestment upon a
resumption of full operations. If there is a prolonged work stoppage, there will
be a material adverse effect on the financial condition and liquidity of the
Company.
The Company is currently negotiating to acquire the Bethship-Sparrows'
Point Yard from Bethlehem Steel Corporation. There can be no assurance, however,
that such transaction will be consummated.
Short-term liquidity is dependent, in large part, on cash on hand,
investments, general economic conditions and their effect on steel demand and
prices. Long-term liquidity is dependent upon the Company's ability to sustain
profitable operations and control costs during periods of low demand or pricing
in order to sustain positive cash flow and to the successful negotiation of a
labor contract with the USWA. The Company satisfies its working capital
requirements through cash on hand, investments, the accounts receivable asset
securitization facility, borrowing availability under the RCF and funds
generated from operations. The Company believes that such sources will provide
the
22
<PAGE>
Company for the next twelve months with the funds required to satisfy working
capital and capital expenditure requirements. External factors, such as
worldwide steel production and demand and currency exchange rates and the
continuing impact of the strike, could materially affect the Company's results
of operations. During 1996 the Company had minimal activity with respect to
futures contracts, and the impact of such activity was not material on its
financial condition or results of operations of 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. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. Such risks and uncertainties include, but are not limited to, the
following: the risk of lost business and other uncertainties relating to the
expiration of WPSC's collective bargaining agreement on October 1, 1996, the
effects and length of the strike by the USWA and its impact on the Company's
business and liquidity and the impact of a new labor contract.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of WHX Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and accumulated earnings and of cash
flows present fairly, in all material respects, the financial position of WHX
Corporation and its subsidiaries (the "Company") at December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. 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 generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and the significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note A to the consolidated financial statements, a
Corporate Reorganization was effected in 1994.
As discussed in Note C to the consolidated financial statements, in
1994, the Company adopted Statement of Financial Accounting Standards No. 112
"Employers' Accounting for Postemployment Benefits".
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
February 10, 1997
24
<PAGE>
<TABLE>
<CAPTION>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS EXCEPT PER SHARE)
- --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------------------------
REVENUES:
<S> <C> <C> <C>
Net sales $1,193,878 1,364,614 $1,232,695
COST AND EXPENSES:
Cost of products sold, excluding depreciation and profit sharing 979,277 1,147,899 1,096,228
Depreciation 61,514 67,700 68,956
Profit sharing 9,257 6,718 --
Selling, administrative and general expense 64,540 66,531 70,971
- --------------------------------------------------------------------------------------------------------------------------------
1,114,588 1,288,848 1,236,155
- --------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 79,290 75,766 (3,460)
Interest expense on debt 22,581 22,830 25,963
Other income 17,925 47,139 25,974
B & LE settlement 36,091 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes, change in
accounting method and extraordinary item 110,725 100,075 (3,449)
Tax provision (benefit) 24,360 19,014 (4,107)
- --------------------------------------------------------------------------------------------------------------------------------
Income before change in accounting
method and extraordinary item 86,365 81,061 658
Extraordinary charge - net of tax -- (3,043) --
Cumulative effect on prior years of
accounting change - net of tax (9,984) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net income 76,381 78,018 658
Dividend requirement for preferred stock 13,177 22,875 22,313
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $63,204 $55,143 $(21,655)
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE OF COMMON STOCK Primary:
Operations $2.54 $2.18 $(.82)
Extraordinary charge - net of tax -- (.11) --
Cumulative effect of change in accounting principle-net of tax (.35) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net $2.19 $2.07 $(.82)
- --------------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED:
Operations $2.14 $1.79 $(.82)
Extraordinary charge - net of tax -- (.06) --
Cumulative effect of change in accounting principle-net of tax (.25) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net $1.89 $1.73 $(.82)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WHX CORPORATION
25
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 1996
- -------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $43,006 $35,020
Short term investments 396,487 447,562
Trade receivables, less allowances for doubtful
accounts of $1,169 and $1,149 54,095 25,805
Inventories 285,871 215,402
Prepaid expenses and deferred charges 18,190 13,942
- -------------------------------------------------------------------------------------------------
Total current assets 797,649 737,731
Investment in associated companies 53,168 77,403
Property, plant and equipment, at cost less
accumulated depreciation and amortization 793,319 755,412
Deferred income taxes 103,098 100,157
Deferred charges and other assets 49,233 48,076
- -------------------------------------------------------------------------------------------------
$1,796,467 $1,718,779
- -------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $110,182 $59,477
Short term debt -- 70,223
Payroll and employee benefits 72,869 57,094
Federal, state and local taxes 9,535 9,120
Deferred income taxes - current 39,645 30,649
Interest and other 20,496 16,876
Long-term debt due in one year 3,877 2,336
- -------------------------------------------------------------------------------------------------
Total current liabilities 256,604 245,775
Long-term debt 285,676 268,198
Employee benefit liabilities 434,216 435,502
Other liabilities 45,178 49,096
- --------------------------------------------------------------------------------------------------
1,021,674 998,571
- --------------------------------------------------------------------------------------------------
Redeemable common stock - 444 shares and 411 shares 6,388 5,771
- --------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock - $.10 par value; authorized 10,000 shares;
issued and outstanding: 6,500 shares and 6,137 shares 650 614
Common stock $0.01 par value; authorized 60,000 shares;
issued and outstanding 25,568 and 24,328 shares 256 245
Unrealized gain on securities - available for sale 1,130 --
Additional paid-in capital 710,471 658,123
Treasury stock-2,025 shares and 157 shares (22,594) (1,382)
Accumulated earnings 78,492 56,837
- -------------------------------------------------------------------------------------------------
768,405 714,437
- --------------------------------------------------------------------------------------------------
$1,796,467 $1,718,779
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WHX CORPORATION
26
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------
Year Ended December 31 1994* 1995* 1996
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $76,381 $78,018 $658
Items not affecting cash from operating activities:
Depreciation and amortization 61,514 67,912 69,287
Other postretirement benefits 13,651 5,522 3,505
Coal retirees' medical benefits (net of tax) -- 3,043 --
Cumulative effect of accounting change (net of tax) 9,984 -- --
Deferred income tax 19,788 6,416 (6,055)
(Gain) loss on sale of assets -- (7,507) 1,541
Equity (income) in affiliated companies (5,680) (4,845) (9,496)
Decrease (increase) in working capital elements:
Trade receivables (29,674) 47,725 50,290
Inventories (21,599) (1,336) 70,469
Short term investments-trading (98,280) (20,443) (60,125)
Investment account borrowings -- -- 68,841
Other current assets (3,411) (5,585) 4,248
Other current liabilities 4,181 (23,557) (70,467)
Other items - net (14,697) (10,519) 4,112
- --------------------------------------------------------------------------------------------------------------
Net cash flow provided by operating activities 12,158 134,844 126,808
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Plant additions and improvements (82,020) (83,282) (35,436)
Short term investments - available for sale (16,041) 10,190 7,920
WP Radio Corp. investment (15,483) -- --
Unimast, Incorporated investment -- (27,500) --
Other investments (12,500) (7,353) (17,240)
Proceeds from sales of assets -- 44,762 2,785
Dividends from affiliated companies 2,500 2,500 2,500
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (123,544) (60,683) (39,471)
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt proceeds -- 1,079 400
Preferred stock issuances 169,750 -- --
Long-term debt retirement (56,526) (24,508) (15,246)
Receivables securitization proceeds (payments) 45,000 22,000 (22,000)
Letter of credit collateralization (28,279) 1,094 384
Short-term borrowings (payments) -- (510) 1,382
Proceeds from warrants exercised 2,635 2,173 5,170
Common stock purchases -- (22,594) (27,556)
Preferred stock purchases -- -- (15,002)
Preferred stock dividends (13,177) (22,875) (22,313)
Redemption of equity issues (589) (438) (542)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 118,814 (44,579) (95,323)
- -------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,428 29,582 (7,986)
Cash and cash equivalents at beginning of year 5,996 13,424 43,006
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $13,424 $43,006 $35,020
- -------------------------------------------------------------------------------------------------------------
</TABLE>
*RECLASSIFIED FOR COMPARABILITY.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WHX CORPORATION
27
<PAGE>
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 the use of management's estimates. Due
to uncertainty involved in estimating the costs, it is reasonably possible that
a change in estimates may occur in the near term as more information becomes
available.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiary companies. All significant intercompany accounts and transactions are
eliminated in consolidation. The Company uses the equity method of accounting
for investments in unconsolidated companies owned 20% or more.
BUSINESS SEGMENT
The Company is 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, steel framing and related accessories 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 40% of its
net sales in 1994, 33.3% in 1995 and 30.6% in 1996. Wheeling-Nisshin was the
only customer to account for more than 10% of net sales. Wheeling-Nisshin
accounted for 15.5%, 13.8% and 11.5% of net sales in 1994, 1995, and 1996,
respectively. Geographically, the majority of the Company's customers are
located within a 350-mile radius of the Ohio Valley.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and on deposit and
highly liquid debt instruments with original maturities of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amount of cash and cash equivalents approximates fair
value because of the short maturity of those instruments. Short term investments
are recorded at fair market value based on trading in the public market.
Redeemable common stock is recorded at the redemption amount which is considered
to approximate fair value. See Note H for a description of fair value of debt
instruments.
The Company accounts for short-term investments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" and in accordance with Financial
Accounting Standards No. 119, "Disclosure About Derivative Financial Instruments
and Fair Value of Financial Instruments." Unrealized investment gains and losses
are recognized based on specific identification of securities.
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.
28
<PAGE>
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. Interest cost is capitalized for qualifying assets during
the assets' acquisition period. Capitalized interest cost is amortized on the
same basis as the related depreciation.
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, OTHER POSTRETIREMENT AND POSTEMPLOYMENT PLANS
The Company has tax qualified defined contribution pension plans
covering substantially all employees. The programs provide for contributions
based on a percentage of compensation for salaried employees and a rate per hour
worked for hourly employees. Costs for these programs are being funded
currently.
The Company sponsors medical and life insurance programs for
substantially all employees. Similar group medical programs extend to pensioners
and dependents. The management plan has provided basic medical and major medical
benefits on a non-contributory basis through age 65. The Company accounts for
these benefits in accordance with Statement of Financial Accounting Standards
No. 106 ("SFAS 106"), Employers' Accounting for Postretirement Benefits Other
than Pensions. The Company accounts for Postemployment Benefits in accordance
with Statement of Financial Accounting No. 112 ("SFAS 112"), "Employers
Accounting for Postemployment Benefits other than Retirements". When accounts
are reasonably determinable, they are calculated at their net present value.
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.
STOCK-BASED COMPENSATION
During 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation."
Pursuant to the provisions of SFAS 123, the Company continues to account for
stock-based compensation under Accounting Principle Board No. 25, "Accounting
for Stock Issued to Employees."
ENVIRONMENTAL MATTERS
The Company provides for remediation costs and penalties associated
with environmental non-compliance when the responsibility of costs is probable
and the amount is estimable. Generally, remediation accruals are recorded when a
feasibility study of plan of action has been determined.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
Common Stock and common stock equivalents outstanding during each year,
excluding redeemable common shares.
NOTE A -- REORGANIZATION
The Company and its subsidiaries were reorganized into a new holding
company structure ("Corporate Reorganization") in July 1994. The majority of the
steel-related business of the Company (including Wheeling-Pittsburgh Steel
Corporation ("WPSC") continues to be owned by Wheeling-Pittsburgh Corporation
("WPC") and the other businesses and assets of the Company, including Unimast,
Inc. are owned by WHX Corporation ("WHX"). Pursuant to the reorganization, WPC
became a wholly-owned
29
<PAGE>
subsidiary of WHX. WHX, the new holding company, is the publicly held issuer for
all of the Common Stock, Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock of the Company presently outstanding. In addition,
WHX guaranteed the Company's outstanding 93/8% Senior Notes due 2003 and 12 1/4%
First Mortgage Notes due 2000. The merger was accounted for as a reorganization
of entities under common control. On the merger date, WHX Corporation had the
same consolidated net worth as the Company and its subsidiaries prior to the
merger.
As a condition of the Corporate Reorganization, the financial and other
covenants under the Senior Notes and First Mortgage Notes indentures also apply
to WHX and accordingly, actions taken by WHX which violate such covenants or
otherwise cause an event of default under such indentures could accelerate the
obligations due thereunder, which could have a material adverse effect on the
Company.
NOTE B -- UNIMAST ACQUISITION
On March 31, 1995, the Company completed the purchase of all of the
outstanding stock of Unimast. The purchase price to the Company was $27.5
million cash, plus the assumption of liabilities totaling $35.0 million,
including long term debt of $19.7 million. The acquisition was accounted for as
a purchase. Goodwill amounting to $4.6 million was recorded in connection with
this acquisition and is being amortized over 15 years. The Consolidated
Statement of Income includes the results of operations of Unimast since its
acquisition.
NOTE C -- PENSIONS, OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
PENSION PROGRAMS
The Company provides defined contribution pension programs for both
hourly and salaried employees. 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 age and years
of service.
As of December 31, 1996, $117.6 million of fully vested funds are held
in trust for benefits earned under the hourly defined contribution pension plans
and $28.6 million is held in trust for fully vested benefits earned under the
salaried employees defined contribution plans. As of December 31, 1996,
approximately 43% of the assets of the hourly pension plans was in fixed income
investments and 57% in equity investments; approximately 47% of the assets of
the salaried pension plan was in fixed income investments and 53% in equity
investments. All plan assets are invested by professional investment managers.
Pension provisions charged against income were $10.5 million, $10.8 million and
$9.3 million in 1994, 1995, and 1996 respectively.
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. At December 31, 1994, 1995
and 1996, the 401(K) plan held 32,851 shares, 115,151 shares and 190,111 shares
of the Company's Common Stock, respectively.
POSTEMPLOYMENT BENEFITS
The Company adopted SFAS 112 as of January 1, 1994. SFAS 112
establishes accounting standards for employers who provide benefits to former or
inactive employees after employment but before retirement. Those benefits
include, among others, disability, severance and workers' compensation. The
Company recorded a charge of $12.2 million ($10.0 million net of tax) in 1994 as
a result of the cumulative effect on prior years of adoption of SFAS 112. The
assumed discount rate used to measure the benefit liability was 8% at December
31, 1994 and 7.5% at December 31, 1995 and 1996.
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
30
<PAGE>
medical expense benefits and a life insurance benefit. The hourly employees'
plans provide non-contributory basic medical and a supplement to Medicare
benefits, and major medical coverage to which the Company contributes 50% of the
insurance premium cost. The management plan has provided basic medical and major
medical benefits on a non-contributory basis through age 65.
The Company accounts for these benefits in accordance with SFAS No.
106. The cost of postretirement medical and life benefits for eligible employees
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 the
collective bargaining agreement effective March 1, 1994. The following table
sets forth the reconciliation of the Accumulated Postretirement Benefit
Obligation ("APBO") to the accrued obligation included in the Company's
consolidated balance sheet at December 31, 1995 and 1996.
December 31,
--------------------------
1995 1996
---- ----
(Dollars in Thousands)
Active employees not eligible for retirement $90,428 $85,030
Active employees eligible to retire 66,581 68,300
Retirees and beneficiaries 230,788 208,011
-------- -------
Accumulated postretirement benefit obligation 387,797 361,341
Plan assets at fair market value 9,046 13,010
-------- -------
Obligations in excess of plan assets 378,751 348,331
Unrecognized prior service cost 2,060 1,806
Unamortized gain 33,482 64,303
-------- -------
Accrued postretirement benefit obligation $414,293 414,440
======== =======
At December 31, 1996 plan assets consisted primarily of short term
corporate notes.
The following table sets forth the components of the recorded net
periodic postretirement benefit costs.
December 31,
-------------------------------
1994 1995 1996
---- ---- ----
(Dollars in Thousands)
Net periodic postretirement benefit cost:
Service cost $ 5,322 $ 3,563 $ 3,953
Interest cost 27,991 26,757 23,982
Other (500) (3,570) (3,888)
------- ------- -------
Total $32,813 $26,750 $24,047
======= ======= =======
Assumptions:
Discount rate 8.0% 7.0% 7.0%
Health care cost trend rate 10.5% 10.0% 9.5%
Return on assets 8.0% 8.0% 8.0%
For measurement purposes, medical costs are assumed to increase at
annual rates as stated above and declining gradually to 4.5% 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 $47.7 million, and net periodic benefit
cost of $4.3 million.
COAL INDUSTRY RETIREE HEALTH BENEFIT ACT
31
<PAGE>
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
related to its previous and present ownership of coal mining operations had been
estimated at $14.3 million (based on preliminary assignment of retirees by the
Social Security Administration ("SSA")) and recorded as an extraordinary charge
in 1993. The Company reduced this liability in 1994 by $2.4 million to reflect
current premium payments, reductions in the number of assigned former employees
and beneficiaries and a lower anticipated health care cost trend rate.
In 1995 the SSA assigned an additional 379 retirees and 130 orphans to
the Company. The Company's obligation under the Act had been estimated as an
additional $18.2 million. Based on the information obtained over the past three
years the Company believed the liability had been reasonably determined and
valued the liability at its net present value using a 7.5% discount rate. After
discounting the liability to present value, the net charge to income in 1995
totaled $3.0 million. At December 31, 1996 the actuarialy determined accrued
liability totaled $10.9 million, covering 572 assigned retirees and dependents.
32
<PAGE>
NOTE D -- INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
---- ---- ----
(Dollars in Thousands)
INCOME TAXES BEFORE EXTRAORDINARY ITEMS
Current
<S> <C> <C> <C>
Federal tax provision $24,125 $11,600 $2,065
State tax provision 1,197 998 400
------- ------- ------
Total income taxes current 25,322 12,598 2,465
------- ------ -----
Deferred
Federal tax provision (benefit) (20,750) (35,684) (6,572)
Pre-reorganization tax benefits
recorded directly to equity 19,788 42,100 --
------- ------- ----------
Income tax provision (benefit) $24,360 $19,014 $(4,107)
======= ======= ========
TOTAL INCOME TAXES
Current
Federal tax provision $24,125 $11,600 $2,065
State tax provision 1,197 998 400
------- ------- ------
Total income taxes current 25,322 12,598 2,465
------- ------ ------
Deferred
Federal tax provision (benefit) (20,750) (37,322) (6,572)
Pre-reorganization tax benefits
recorded directly to equity 17,596 42,100 --
-------- ------- ----------
Income tax provision (benefit) $ 22,168 $17,376 $(4,107)
======== ======= ========
COMPONENTS OF TOTAL INCOME TAXES
Operations $24,360 $19,014 $(4,107)
Extraordinary items (2,192) (1,638) --
-------- ------- ---------
Income tax provision (benefit) $ 22,168 $17,376 $(4,107)
======== ======= ========
</TABLE>
33
<PAGE>
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
<TABLE>
<CAPTION>
1995 1996
---- ----
(Dollars in Thousands)
ASSETS
<S> <C> <C>
Postretirement and postemployment employee benefits $ 147.9 $ 147.1
Operating loss carryforward (expiring in 2005 to 2008) 9.8 8.0
Minimum tax credit carryforwards (indefinite carryforward) 47.1 49.5
Provision for expenses and losses 38.1 43.3
Leasing activities 26.4 25.2
State income taxes 6.0 6.0
Miscellaneous other 10.3 10.5
--------- ---------
DEFERRED TAX ASSETS $ 285.6 $ 289.6
------- -------
LIABILITIES
Property plant and equipment $(153.3) $(158.8)
Inventory (43.3) (35.5)
State income taxes (4.9) (4.9)
Miscellaneous other (.7) (.9)
--------- ---------
DEFERRED TAX LIABILITY $(202.2) $(200.1)
Valuation Allowance (20.0) (20.0)
-------- --------
DEFERRED INCOME TAX ASSET - NET $ 63.4 $ 69.5
======= =======
</TABLE>
As of December 31, 1996, for financial statement reporting purposes a
balance of approximately $29 million of prereorganization tax benefits exist.
These benefits will be reported as a direct addition to equity as they are
recognized. In 1995 tax benefits of $42.1 million were recognized as a direct
addition to equity. The decrease in the valuation allowance in 1995 reflects the
recognition of these tax benefits. No prereorganization tax benefits were
recognized in 1996.
During 1994, the Company experienced an ownership change as defined by
Section 382 of the Internal Revenue Code. As the result of this event, the
Company will be limited in its ability to use net operating loss carryforwards
and certain other tax attributes to reduce subsequent tax liabilities. The
amount of taxable income that can be offset by pre-change tax attributes in any
annual period is limited to approximately $32 million.
Total federal and state income taxes paid in 1994, 1995 and 1996 were
$1.8 million, $18.0 million and $3.5 million, respectively.
Federal tax returns have been examined by the Internal Revenue Service
("IRS") through 1987. The statute of limitations has expired for years through
1992; however, the IRS can review prior years to adjust any NOL's 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.
34
<PAGE>
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:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Income (loss) before taxes, extraordinary item
and accounting change $110,725 $100,075 $(3,449)
======== ======== ========
Tax provision (benefit) at statutory rate $38,754 $ 35,026 $(1,207)
Increase (reduction) in tax due to:
Percentage depletion (673) (973) (1,027)
Equity earnings (1,423) (1,288) (2,408)
State income tax net of federal effect 2,850 1,624 260
Alternative minimum tax rate differential (14,532) - -- --
Reduction in valuation allowance net of equity adjustment (16,300) --
Other miscellaneous (616) 925 275
------- ------- --------
Tax provision (benefit) $24,360 $19,014 $(4,107)
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
NOTE E--SHORT TERM INVESTMENTS
The composition of the Company's short term investments are as follows:
1995 1996
---- ----
Trading Securities: (Dollars in thousands)
<S> <C> <C>
U. S. Treasury Securities $362,373 $402,125
U. S. Government Agency Mortgage Backed Obligations 12,330 40,013
Other 14,865 5,424
Available-for-sale securities:
Equities 6,919 --
-------- --------
$396,487 $447,562
======== ========
</TABLE>
These investments are subject to price volatility associated with any
interest bearing instrument. Fluctuations in general interest rates effect the
value of these investments.
The Company recognizes gains and losses based on specific
identification of the securities which comprise the investment balance. At
December 31, 1995 unrealized holding gains on available- for-sale securities of
$1.1 million were reported as a separate component of stockholder's equity. No
available-for-sale securities were held at December 31, 1996. Net unrealized
holding gains and losses on trading securities included in net income for 1995
and 1996 were $8.7 million gain and $10.0 million loss, respectively. At
December 31, 1996 the Company had short term margin borrowings of $68.8 million
related to the short term investments. There were no short term borrowings at
December 31, 1995.
On December 21, 1995, the Company purchased a "When-Issued" contract
which allowed it to purchase United States 5-year Treasury Notes at the next
scheduled auction. The contract had a notional value of $700 million, although
purchased at a discount, with an average fair value through December 31, 1995 of
$700.7 million. Fair value at December 31, 1995 was $702.8 million with $4.2
million gain included in fourth quarter earnings. The Company has accounted for
this investment on a trade-date basis, consistent with other non-financial
entities and is classified as a trading security.
35
<PAGE>
NOTE F -- INVENTORIES
December 31,
-------------------------------------
1995 1996
---- ----
(Dollars in Thousands)
Finished products $69,125 $66,694
In-process 119,302 59,984
Raw materials 75,837 80,147
Other materials and supplies 29,823 19,476
-------- --------
294,087 226,301
LIFO reserve (8,216) (10,899)
$285,871 $215,402
======== ========
During 1995 and 1996, certain inventory quantities were reduced,
resulting in liquidations of LIFO inventories, the effect of which increased
income by approximately $.8 million in 1995, and decreased income by
approximately $1.2 million in 1996.
NOTE G -- PROPERTY, PLANT AND EQUIPMENT
December 31,
-----------------------------------
1995 1996
---- ----
(Dollars in Thousands)
Land and mineral properties $27,001 $26,380
Buildings, machinery and equipment 1,026,886 1,053,237
Construction in progress 20,831 18,839
--------- ---------
1,074,718 1,098,456
Accumulated depreciation and
amortization 281,399 343,044
--------- ---------
$793,319 $755,412
========= =========
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 1995 and
1996 depreciation under the modified units of production method was $4.9 million
or 9.6% and $7.6 million or 13.4%, respectively, less than straight line
depreciation. The 1996 reduction in depreciation primarily reflects the work
stoppage which began October 1, 1996 and continued through year end.
36
<PAGE>
NOTE H -- LONG-TERM DEBT
December 31,
----------------------------------
1995 1996
---- ----
(Dollars in Thousands)
Senior Unsecured Notes due 2003, 93/8%(1) $270,328 $266,155
First Mortgage Notes due 2000, 12 1/4%(1) 9,458 --
IRS pension tax note due 1997,8%:(1) 3,667 1,833
Obligation to PBGC due 1997, 8%(1) 3,565 --
Other 2,535 2,546
-------- --------
289,553 270,534
Less portion due within one year 3,877 2,336
-------- --------
Total Long-Term Debt (2) $285,676 $268,198
======== ========
(1) WPC debt guaranteed by WHX. See Note N.
(2) The fair value of long-term debt at December 31, 1995 and December 31,
1996 was $277.4 million and $270.2 million, respectively. Fair value of
long-term debt is estimated based on trading in the public market.
Long-term debt maturing in each of the next five years is as follows:
1997, $2,336; 1998, $467; 1999, $474; 2000, $472 and 2001, $310.
A summary of the financial agreements at December 31, 1996 follows:
REVOLVING CREDIT FACILITY:
On December 28, 1995, WPSC entered into a Second Amended and Restated
Revolving Credit Facility ("RCF") with Citibank, N.A. as agent. The RCF provides
for borrowings for general corporate purposes up to $125 million and a $35
million sub-limit for Letters of Credit.
The Credit Agreement expires May 3, 1999. Initial interest rates are
based on the Citibank prime rate plus .50% and/or a Eurodollar rate plus 1.75%,
however, the margin over the prime rate and the Eurodollar rate can fluctuate up
or down based upon performance. The maximum prime rate margin is 1.00% and the
maximum Eurodollar margin is 2.25%. The initial letter of credit fee is 1.75%
and is also performance based with a maximum rate of 2.25%.
Borrowings are secured primarily by 100% of the eligible inventory of
WPSC, Pittsburgh- Canfield Corporation, Wheeling Construction Products, Inc. and
Unimast, 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. Certain financial covenants associated with leverage, net
worth, capital spending, cash flow and interest coverage must be maintained.
There are no borrowings or letters of credit outstanding against the RCF at
December 31, 1996. Due to the prolonged and continuing work stoppage by the
USWA, the Company negotiated an amendment to certain of the RCF's covenants to
provide the Company with additional flexibility during the current business
situation.
In August 1994 WPSC entered into a separate facility for letters of
credit up to $50 million. At December 31, 1996 letters of credit totaling $25.5
million were outstanding under this facility. The letters of credit are
collateralized at 105% with U.S. Government securities owned by the Company, and
are subject to an administrative charge of .4% per annum on the amount of
outstanding letters of credit.
37
<PAGE>
FIRST MORTGAGE NOTES:
In November 1991 the Company completed an offering of $175.0 million of
12 1/4% First Mortgage Notes. The First Mortgage Notes were redeemable, in whole
or in part, at the option of the Company, on or after November 15, 1996, at
specified redemption prices plus accrued interest. Pursuant to an October 1993
offer to repurchase by the Company, $165.5 million aggregate principal amount of
First Mortgage Notes were tendered and accepted for payment by the Company. In
November 1996 the Company redeemed the remaining $8.1 million First Mortgage
Notes outstanding.
9 3/8% SENIOR NOTES DUE 2003:
On November 23, 1993 WPC issued $325 million of 9 3/8% Senior Notes.
Interest on the Senior Notes is payable semi-annually on May 15 and November 15
of each year, commencing May 15, 1994. The Senior Notes mature on November 15,
2003. During 1994, the Company repurchased $54.3 million of its outstanding
9 3/8% Senior Notes at an average price of 94% of the related outstanding
principal amount.
The Senior Notes are redeemable at the option of WPC, in whole or in
part, at any time on or after November 15, 2000 at specified redemption prices,
plus accrued interest to the date of redemption.
Upon a Change of Control (as defined), WPC will have the option to
redeem the Senior Notes, in whole or in part, at a redemption price equal to the
principal amount thereof plus the Applicable Premium (as defined) and, upon a
Change of Control Triggering Event (as defined), each holder of Senior Notes
will have the right to require WPC to repurchase such holder's Senior Notes at
101% of the principal amount thereof, together, in each case, with accrued
interest to the date of redemption or repurchase.
The Senior Notes are unsecured obligations of WPC ranking senior in
right of payment to WPC's subordinated indebtedness, if any, and pari passu with
all other senior indebtedness of WPC. Pursuant to the Company's reorganization
in 1994, WHX guaranteed the payment of the Senior Notes.
The Indenture contains certain covenants, including but not limited to,
covenants with respect to the following matters: (i) the incurrence of
additional indebtedness by WPC and its subsidiaries; (ii) the incurrence of
certain liens by WPC and its subsidiaries; (iii) the making of certain
sale-leaseback transactions; (iv) the disposition by WPC and its subsidiaries of
the proceeds of certain asset sales; (v) the making by WPC and its subsidiaries
of certain dividends and other restricted payments; (vi) the entry into certain
transactions with affiliates of WPC and (vii) the ability of WPC to engage in
certain mergers, consolidations or asset sales.
38
<PAGE>
INTEREST COST
Aggregate interest costs on long-term debt and amounts capitalized
during the three years ended December 31, 1996, are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Aggregate interest expense on long-term debt $30,957 $29,192 $28,463
Less: Capitalized interest 8,376 6,362 2,500
------- -------- --------
Interest expense $22,581 $22,830 $25,963
======= ======= =======
Interest paid $28,906 $27,873 $27,660
======= ======= =======
</TABLE>
NOTE I -- STOCKHOLDERS' EQUITY
The authorized capital stock of WHX consists of 60,000,000 shares of
Common Stock, $.01 par value, of which 24,738,604 shares (including redeemable
Common Stock, but excluding 156,900 shares of Treasury Stock), were outstanding
as of December 31, 1996, and 10,000,000 shares of Preferred Stock, $0.10 par
value, of which 2,925,000 shares of Series A Convertible Preferred Stock and
3,211,600 shares of Series B Convertible Preferred Stock were outstanding as of
December 31, 1996. In 1995 and 1996, the Company purchased 2,025,000 shares and
2,940,316 shares, respectively, of Common Stock on the open market.
SERIES A CONVERTIBLE PREFERRED STOCK
In July 1993 the Company issued 3,000,000 shares of Series A
Convertible Preferred Stock for net proceeds of $145.0 million. Dividends on the
shares of the Series A Convertible Preferred Stock are cumulative, are payable
quarterly in arrears on January 1, April 1, July 1 and October 1 of each year,
in an amount equal to $3.25 per share per annum.
Each share of the Series A Convertible Preferred Stock is convertible
at the option of the holder thereof at any time into shares of Common Stock of
the Company, par value $.01 per share, at a conversion price of $15.78 per share
of Common Stock (equivalent to a conversion rate of approximately 3.1686 shares
of Common Stock for each share of Series A Convertible Preferred Stock), subject
to adjustment under certain conditions.
The Series A Convertible Preferred Stock was not redeemable prior to
July 1, 1996. On and after such date, the Series A Convertible Preferred Stock
is redeemable at the option of the Company, in whole or in part, for cash,
initially at $52.275 per share and thereafter at prices declining ratably to
$50.00 per share on and after July 1, 2003, plus in each case accrued and unpaid
dividends to the redemption date. The Series A Convertible Preferred Stock is
not entitled to the benefit of any sinking fund. In 1996, the Company purchased
and retired 75,000 shares of Series A Convertible Preferred Stock on the open
market.
SERIES B CONVERTIBLE PREFERRED STOCK
The Company completed a Shelf Registration in the amount of $550
million of debt securities or preferred stock in August 1994. Pursuant to this
registration the Company issued 3,500,000 shares of Series B Convertible
Preferred Stock in September 1994 for net proceeds of $169.8 million. Dividends
on the shares of the Series B Convertible Preferred Stock, are cumulative, are
payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each
year, in an amount equal to $3.75 per share per annum.
39
<PAGE>
Each share of the Series B Convertible Preferred Stock is convertible
at the option of the holder thereof at any time into shares of Common Stock of
the Company, par value $.01 per share, at a conversion price of $20.40 per share
of Common Stock (equivalent to a conversion rate of approximately 2.4510 shares
of Common Stock for each share of Series B Convertible Preferred Stock), subject
to adjustment under certain conditions.
The Series B Convertible Preferred Stock is not redeemable prior to
October 1, 1997. On and after such date, the Series B Convertible Preferred
Stock is redeemable at the option of the Company, in whole or in part, for cash,
initially at $52.625 per share and thereafter at prices declining ratably to
$50.00 per share on and after October 1, 2004, plus in each case accrued and
unpaid dividends to the redemption date. The Series B Convertible Preferred
Stock is not entitled to the benefit of any sinking fund. In 1996 the Company
purchased and retired 288,400 shares of Series B Convertible Preferred Stock on
the open market.
REDEEMABLE COMMON STOCK
Certain present and former employees of the Company were issued
preferred shares of the Company prior to the Chapter 11 proceeding of the
Company's predecessor in exchange for wage and salary concessions. Such
preferred shares were exchanged for 1,279,935 shares of Common Stock under the
Chapter 11 Plan of Reorganization, which shares were issued to an Employee Stock
Ownership Plan ("ESOP") on such employees' behalf. Beneficial owners of such
shares who were active employees on August 15, 1990 and who have either retired,
died or become disabled, or who reach 30 years of service, may sell their Common
Stock to the Company at a price of $15 or, upon qualified retirement, $20 per
share. These contingent obligations are expected to extend over many years, as
participants in the ESOP satisfy the criteria for selling shares to the Company.
In addition, each beneficiary can direct the ESOP to sell any or all of its
Common Stock into the public markets at any time; provided, however, that the
ESOP will not on any day sell in the public markets more than 20% of the number
of shares of Common Stock traded during the previous day. As of December 31,
1996, 410,559 shares of such Common Stock remained outstanding.
40
<PAGE>
Changes in capital accounts are as follows:
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Capital in
Accumulated Excess of
Convertible Treasury Earnings Par
Common Stock Preferred Stock (Deficit) Value
Shares Amount Shares Amount Shares Amount --------- ---------
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1994 26,541 265 3,000 300 -- -- (39,855) 471,572
EIP shares sold 97 2 -- -- -- -- -- 2,414
Stock options exercised 144 1 -- -- -- -- -- 1,076
Warrants exercised 414 4 -- -- -- -- -- 2,627
401K contribution 33 -- -- -- -- -- -- 574
Preferred stock sold -- -- 3,500 350 -- -- -- 169,043
Pre-reorg. tax benefits -- -- -- ---- -- -- 17,599
Preferred dividends -- -- -- -- -- -- (13,177) --
Net Income -- -- -- -- -- -- 76,381 --
-------- ----- ----- ----- ----- ----- ------ ----------
Balance December 31, 1994 27,229 272 6,500 650 -- -- 23,349 664,905
------ --- ----- ----- ----- ----- ------ -------
EIP shares sold 4 -- -- -- -- -- -- 57
Stock options exercised 24 -- -- -- -- -- -- 191
Warrants exercised 64 1 -- -- -- -- -- 406
401K contribution 84 1 -- -- -- -- -- 952
Purchase of treasury stock (2,025) (20) -- -- 2,025 (22,594) -- --
Acquisition of Namasco assets 188 2 -- -- -- -- -- 1,998
Financing costs -- -- -- -- -- -- -- (138)
Pre-reorg. tax benefits -- -- -- -- -- -- -- 42,100
Preferred dividends -- -- -- -- -- -- (22,875) --
Net Income -- -- -- -- -- -- 78,018 --
------- ------ ------ ------ ------ ------ ------ ---------
Balance December 31, 1995 25,568 256 6,500 650 2,025 (22,594) 78,492 710,471
------ --- ----- --- ----- ------- ------ -------
EIP shares sold 5 -- -- -- -- -- -- 75
Stock options exercised 124 1 -- -- -- -- -- 947
Warrants exercised 1,477 15 -- -- -- -- -- 9,377
401K contribution 94 1 -- -- -- -- -- 960
Purchase of treasury stock (2,940) (19) -- -- 2,940 (27,537) -- --
Retirement of treasury stock -- (9) -- -- (4,808) 48,749 -- (48,741)
Retirement of preferred stock -- -- (363) (36) -- -- -- (14,966)
Preferred dividends -- -- -- -- -- -- (22,313) --
Net Income -- -- -- -- -- -- 658 --
------- ------ ------ ------ ----- -------- -------- ---------
Balance December 31, 1996 24,328 $245 6,137 $614 157 $(1,382) $56,837 $658,123
====== ====== ====== ====== ===== ======= ======= ========
</TABLE>
STOCK OPTION PLAN
The Wheeling-Pittsburgh Corporation Stock Option Plan ("1991 Plan") is
intended to assist the Company in securing and retaining key employees by
allowing them to participate in the ownership and growth of the Company through
the grant of incentive and non-qualified options (collectively, the "Options")
to full-time employees of the Company and its subsidiaries. Incentive stock
options granted under the Option Plan are intended to be "Incentive Stock
Options" as defined by Section 422 of the Code.
An aggregate of 2,500,000 shares of Common Stock has been reserved for
issuance upon exercise of Options under the 1991 Plan. The 1991 Plan is
administered by a committee (the "Committee") consisting of not less than three
nonemployee members appointed by the Board of Directors. The term of Options
granted under the 1991 Plan may not exceed 10 years (five years in
41
<PAGE>
the case of an incentive Option granted to an optionee owning more than 10% of
the voting stock of the Company (a "10% Holder"). The Option price for Options
shall not be less than 100% of the "fair market value" of the shares of Common
Stock at the time the Option is granted; provided, however, that with respect to
an incentive option, in the case of a 10% Holder, the purchase price per share
shall be at least 110% of such fair market value. The aggregate fair market
value of the shares of Common Stock as to which an optionee may first exercise
incentive stock options in any calendar year may not exceed $100,000. Payment
for shares purchased upon exercise of Options is to be made in cash, but, at the
discretion of the Committee, may be made by delivery of other shares of Common
Stock of comparable value. The 1991 Plan will terminate on September 24, 2001
and may be terminated at any time by the Board of Directors prior to that date.
DIRECTORS OPTION PLAN
The 1993 Directors D&O Plan (the "1993 D&O Plan") is authorized to
issue shares of Common Stock pursuant to the exercise of options with respect to
a maximum of 400,000 shares of Common Stock. The options vest over three years
from the date of grant.
OPTION GRANTS TO WPN CORP.
On July 29, 1993 (the "Approval Date"), the Board of Directors approved
the grant of options to WPN Corporation to purchase 1,000,000 shares of Common
Stock (the "Option Grants"). The Option Grants were approved by the stockholders
on March 31, 1994.
The options are exercisable with respect to one-third of the shares of
Common Stock issuable upon the exercise thereunder at any time on or after the
date of stockholder approval of the Option Grants. The options with respect to
an additional one-third of the share of Common Stock may be exercised on the
first and second anniversaries of the Approval Date, respectively. The options,
to the extent not previously exercised, will expire on April 29, 2003.
A Summary of the Option Plans:
<TABLE>
<CAPTION>
Number of Options
-----------------
1991 D & O WPN OPTION PRICE WEIGHTED AVERAGE
Plan Plan Grants Or Range Option Price
---- ---- ------ -------- ------------
<S> <C> <C> <C> <C> <C>
Balance 1/1/94 859,938 164,000 1,000,000 9.512
Granted 526,250 60,000 -- 14.625-15.125 14.676
Cancelled (17,197) -- -- 14.625 14.090
Exercised (143,072) -- -- 6.125-8.750 7.479
--------- --------- ------------
Balance 12/31/94 1,225,919 224,000 1,000,000 10.897
Granted -- 68,000 -- 11.00 11.000
Cancelled (43,328) -- -- 6.125-14.625 9.733
Exercised (24,174) -- -- 6.125-8.750 7.913
-------- ---------- ------------
Balance 12/31/95 1,158,417 292,000 1,000,000 10.949
Granted 23,000 34,000 -- 9.875-13.50 11.226
Cancelled (8,423) -- -- 8.750-14.625 14.317
Exercised (123,664) -- -- 6.125-8.75 7.667
--------- ---------- ------------
Balance 12/31/96 1,049,330 326,000 1,000,000 11.054
--------- -------- ---------
</TABLE>
Options outstanding at December 31, 1996 which are exercisable totaled 2,101,294
and have a weighted average option price of $10.75.
42
<PAGE>
In 1996 the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, and elected to continue to account for such compensation under the
provisions of APB 25. Therefore, no compensation costs have been recognized for
the stock option plans. Had the Company elected to account for stock-based
compensation under the provisions of SFAS No. 123, the effect on net income and
earnings per share would not be material.
EARNINGS PER SHARE
The computation of primary earnings per common share is based upon the
average shares of common stock and common stock equivalents outstanding. Common
stock equivalents represent the dilutive effect of assuming the exercise of
outstanding stock options and warrants. The computation of fully diluted
earnings per common share in 1994 and 1995 further assumes the conversion of
preferred shares. In 1996 the conversion of preferred shares would have had an
anti-dilutive effect.
The shares used in the computation were as follows:
Year Ended December 31,
1994 1995 1996
---- ---- ----
Primary 28,833,470 26,661,324 26,287,379
Fully diluted 40,447,035 45,189,784 43,837,725
43
<PAGE>
NOTE J -- COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
The Company, as well as other steel companies, is subject to demanding
environmental standards imposed by Federal, state and local environmental laws
and regulations. For 1994, 1995, and 1996 aggregate capital expenditures for
environmental control projects totaled approximately $8.7 million, $5.9 million
and $6.8 million, respectively. In 1994, 1995 and 1996 the Company paid $.6
million, $.1 million and $.5 million, respectively, in civil penalties from
previously established reserves. Based upon 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 any additional fines
and penalties relating to the operation of its facilities, to have a material
adverse effect on the financial condition or results of operations of the
Company.
The Company is currently funding its share of remediation costs of certain
hazardous wastes sites. The Company believes that these remediation costs are
not significant and will not be significant in the foreseeable future. The
Company has been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act
("Superfund") or similar state statues at seven 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 one of
these sites will be between $1 million and $4 million. At four other sites the
costs are estimated to aggregate up to $700,000. The Company lacks sufficient
information regarding the remaining sites to form an estimate. The Company is
currently funding its share of remediation costs. Based upon all available
information, the Company does not anticipate that assessment and remediation
costs resulting from the Company being a potentially responsible party will have
a material adverse effect on its financial condition or results of operations.
Non-current accrued environmental liabilities totaled $7.3 million and $7.8
million at December 31, 1995 and December 31, 1996, respectively. These accruals
were first determined by the Company when the Company reorganized under the
federal bankruptcy laws in January 1991, based on all available information,
including information provided by third parties, and existing laws and
regulations then in effect, and are reviewed and adjusted quarterly as new
information becomes available. However, as further information comes into the
Company's possession, it will continue to reassess such evaluations.
COLLECTIVE BARGAINING AGREEMENT
The Company's labor agreement with the USWA expired on October 1, 1996.
The Company and union were unable to agree on terms of a new labor agreement.
The USWA is picketing eight plants located in Ohio, Pennsylvania and West
Virginia. No steel products are being produced at or shipped from these
facilities. A prolonged work stoppage will have a material adverse effect on the
financial condition and results of operations of the Company. Approximately 70%
of the Company workforce are covered by the collective bargaining agreement.
44
<PAGE>
NOTE K -- RELATED PARTY TRANSACTION
The Chairman of the Board of the Company is the President and sole
shareholder of WPN Corp. Pursuant to a management agreement effective as of
January 3, 1991, as amended January 1, 1993 and April 11, 1994, approved by a
majority of the disinterested directors of the Company, WPN Corp. provides
certain financial, management advisory and consulting services to the Company,
subject to the supervision and control of the disinterested directors. Such
services include, among others, identification, evaluation and negotiation of
acquisitions, responsibility for financing matters for the Company and its
subsidiaries, review of annual and quarterly budgets, supervision and
administration, as appropriate, of all the Company's accounting and financial
functions and review and supervision of reporting obligations under Federal and
state securities laws. In exchange for such services, WPN Corp. received a fixed
monthly fee of $458,333 in 1995 and 1996. 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.
NOTE L --- OTHER INCOME
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
---- ---- ----
(Dollars in Thousands)
Interest and investment income $12,483 $37,571 $19,660
Equity income 5,367 4,845 9,495
Sale of WP Radio assets -- 6,718 --
Receivables securitization fees (1,301) (4,283) (4,934)
Other, net 1,376 2,288 1,753
------- --------- --------
$17,925 $47,139 $25,974
======= ======= =======
45
<PAGE>
NOTE M -- SUPPLEMENTAL SUBSIDIARY COMPANY SUMMARIZED FINANCIAL INFORMATION
The following summarized consolidated financial information of the
Company's major operating subsidiary, WPC, are being reported because WHX
Corporation guarantees certain debt of WPC.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1995 1996
---- ---- ----
INCOME DATA (DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales $1,193,878 $1,267,869 $1,110,684
Cost of products sold 980,044 1,059,622 988,161
Depreciation 61,094 65,760 66,125
Selling, general and administrative expense 70,089 61,741 54,903
-------- --------- ----------
Operating income 82,651 80,746 1,495
Interest expense 22,581 22,431 25,885
Other income 6,731 3,234 9,216
B&LE settlement 36,091 -- --
-------- --------- ----------
Income (loss) before tax and cumulative change in 102,892 61,549 (15,174)
accounting and extraordinary item
Tax provision (benefit) 21,173 3,030 (8,190)
-------- -------- ----------
Income before cumulative change in accounting 81,719 58,519 (6,984)
and extraordinary items
Cumulative effect of change in accounting
principle (net of tax) (9,984) -- --
Extraordinary item (net of tax) -- (3,043) --
----------- ----------- ---------
Net Income (Loss) $ 71,735 $ 55,476 $ (6,984)
=========== ============ =========
Year Ended December 31,
---------------------------------------------
1994 1995 1996
---- ---- ----
BALANCE SHEET DATA (DOLLARS IN THOUSANDS)
ASSETS
Current assets $ 393,245 $ 379,651 $ 267,434
Non-current assets 873,127 960,384 976,757
----------- ----------- -----------
Total Assets $1,266,372 $1,340,035 $1,244,191
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $251,332 $ 231,852 $ 158,412
Non-current liabilities 769,256 764,412 748,993
Stockholder's equity 245,784 343,771 336,786
----------- ----------- -----------
Total Liabilities and Stockholders' Equity $1,266,372 $1,340,035 $1,244,191
========== ========== ==========
</TABLE>
46
<PAGE>
NOTE N -- SALE OF RECEIVABLES
In August 1994 Wheeling-Pittsburgh Funding, Inc. a special purpose
wholly-owned subsidiary ("Funding") 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, Wheeling Construction
Products, Inc. and Pittsburgh Canfield Corporation. The agreement expires in
August 1999. In July 1995 WPSC amended such agreement to sell an additional $20
million on similar terms and conditions. In October 1995 WPSC entered into an
agreement to include the receivable generated by Unimast, in the pool of
accounts receivable sold. Accounts receivable at December 31, 1995 and 1996
exclude $67 million and $45 million, respectively, representing uncollected
accounts receivable sold with recourse limited to the extent of uncollectible
balances. Fees of $4.3 million paid by the Company under this agreement were
based upon a fixed rate set on the date the initial $45 million of receivables
were sold and variable rates on subsequent sales that range from 5.76% to 8.25%
of the outstanding amount of receivables sold. Based on the Company's collection
history, the Company believes that credit risk associated with the above
arrangement is immaterial. However, if the strike by the USWA continues the
Company may not be able to generate sufficient trade accounts receivable to
maintain the receivables securitization agreements. If the securitization
agreements are terminated, collection of the sold receivables would be used to
pay off the investors.
In June 1996, the Financial Accounting Standards Board (FASB) approved
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities, and supersedes SFAS 77, "Reporting by Transferors for Transfers of
Receivables with Recourse" which the Company had previously followed. SFAS 125
is effective after December 31, 1996. Based on the provisions of SFAS 125, the
Company does not currently believe the effects of adoption of SFAS 125 will be
material.
NOTE O -- SEPARATE FINANCIAL STATEMENTS OF SUBSIDIARIES NOT
CONSOLIDATED AND 50 PERCENT OR LESS OWNED PERSONS.
The Company owns 35.7% of Wheeling-Nisshin. Wheeling-Nisshin had total
debt outstanding at December 31, 1995 and 1996 of approximately $36.7 millions
and $25.3 million, respectively. The Company derived approximately 11.5% of its
revenues from sale of steel to Wheeling-Nisshin. The Company received dividends
of $2.5 million from Wheeling-Nisshin in 1996. Audited financial statements of
Wheeling-Nisshin are presented under Item 14 because it is considered a
significant subsidiary of the Company under SEC regulations.
47
<PAGE>
NOTE P -- QUARTERLY INFORMATION (UNAUDITED)
Financial results by quarter for the two fiscal years ended December 31,
1995 and 1996 are as follows:
<TABLE>
<CAPTION>
Earnings (Loss)
Per Share
Gross Net Before Earnings
Net Profit Extraordinary Income Extraordinary (Loss)
Sales (Loss) Charge (Loss) Charge Per Share
----- ------ ------ ------ ------ ---------
(Dollars, Except Per Share, in Thousands)
1995
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $324,187 $63,125 -- $22,827 $.61 $.61
2nd Quarter 366,271 52,590 -- 21,516 .60 .60
3rd Quarter 339,435 55,848 -- 19,334 .52 .52
4th Quarter 334,721 45,152 (3,043) 14,341 .44 .33
1996:
1st Quarter 315,493 41,713 -- 1,159 (.17) (.17)
2nd Quarter 357,815 59,266 -- 16,830 .42 .42
3rd Quarter 391,925 61,597 -- 17,317 .45 .45
4th Quarter 167,462 (26,109) -- (34,648) (1.60) (1.60)
</TABLE>
48
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors and executive officers of the Company
required by the item is incorporated by reference to the information appearing
under the heading "Election of Directors" in the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders.
ITEM 11. MANAGEMENT REMUNERATION
Incorporated by reference to the information appearing under the heading
"Executive Compensation" in the Company's definitive proxy statement for the
1997 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Incorporated by reference to the information appearing under the heading
"Security Ownership" in the Company's definitive proxy statement for the 1997
Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the information appearing under the heading
"Certain Relationships and Related Transactions" in the Company's definitive
proxy statement for the 1997 Annual Meeting of Stockholders.
49
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS 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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Wheeling-Nisshin, Inc.:
We have audited the accompanying balance sheets of Wheeling-Nisshin, Inc. (the
Company) as of December 31, 1996 and 1995, and the related statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wheeling-Nisshin, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
Coopers & Lybrand LLP
Pittsburgh, Pennsylvania
February 14, 1997
50
<PAGE>
Wheeling-Nisshin, Inc.
Balance Sheets
December 31, 1995 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1996
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents $15,910 $19,017
Investments -- 19,900
Trade accounts receivable, net of allowance for bad debts of
$250 in 1995 and 1996 19,035 19,765
Inventories (Note 3) 18,766 22,233
Deferred income taxes (Note 6) 4,507 2,337
Other current assets 183 819
-------- ---------
Total current assets 58,401 84,071
Property, plant and equipment, net (Notes 4 and 5) 145,716 134,174
Debt issuance costs, net of accumulated amortization
of $1,533 in 1995 and $1,617 in 1996 368 284
Other assets 1,004 851
-------- ---------
Total assets $205,489 $219,380
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 8,380 21,226
Due to affiliates (Note 8) 6,036 --
Accrued interest 670 497
Accrued income taxes 767 3,183
Other accrued liabilities 3,402 3,388
Accrued profit sharing 5,546 6,505
Current portion of long-term debt 11,361 6,828
------ -------
Total current liabilities 36,162 41,627
Long-term debt, less current portion (Note 5) 25,315 18,487
Deferred income taxes (Note 6) 23,423 24,116
------ -------
Total liabilities 84,900 84,230
------ ------
Contingencies (Note 9)
Shareholders' equity:
Common stock, no par value; authorized, issued and
outstanding, 7,000 shares 71,588 71,588
Retained earnings 49,001 63,562
-------- -------
Total shareholders' equity 120,589 135,150
-------- --------
Total liabilities and shareholders' equity $205,489 $219,380
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
Wheeling-Nisshin, Inc.
Statement of Income
for the years ended December 31, 1994, 1995 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Sales $374,615 $391,577 $377,500
Cost of goods sold (Note 8) 345,160 349,429 335,071
------- ------- -------
Gross profit 29,455 42,148 42,429
Selling, general and administrative expenses 8,478 10,549 8,388
-------- --------- --------
Operating profit 20,977 31,599 34,041
-------- -------- --------
Other income (expense):
Interest and other income 1,200 1,717 2,539
Interest expense (4,596) (3,729) (1,909)
--------- -------- --------
(3,396) (2,012) 630
--------- -------- --------
Income before income taxes 17,581 29,587 34,671
Provision for income taxes (Note 6) 7,160 11,538 13,110
-------- -------- --------
Net income $ 10,421 $ 18,049 $ 21,561
========= ========= =========
Earnings per share $ 1.49 $ 2.58 $ 3.08
========= ========= ========
</TABLE>
Wheeling-Nisshin, Inc.
Statement of Shareholders' Equity
for the years ended December 31, 1994, 1995 and 1996
(Dollars in thousands)
Common Retained
Stock Earnings Total
----- -------- -----
Balance at December 31, 1993 $71,588 $34,531 $106,119
Net income -- 10,421 10,421
Cash dividends ($1 per share) -- (7,000) (7,000)
------ -------- --------
Balance at December 31, 1994 71,588 37,952 109,540
Net income -- 18,049 18,049
Cash dividends ($1 per share) -- (7,000) (7,000)
------ -------- --------
Balance at December 31, 1995 71,588 49,001 120,589
Net income -- 21,561 21,561
Cash dividends ($1 per share) -- (7,000) (7,000)
------ -------- --------
Balance at December 31, 1996 $71,588 $63,562 $135,150
======= ======= ========
The accompanying notes are a integral part of the financial statements.
52
<PAGE>
Wheeling-Nisshin, Inc.
Statement of Cash Flows
for the years ended December 31, 1994, 1995 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,421 $ 18,049 $ 21,561
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 14,666 16,210 12,952
Loss on disposal of assets 12 -- --
Deferred income taxes 4,300 5,449 5,330
Net change in operating assets and liabilities:
Increase in trade accounts receivable (2,053) (602) (730)
(Increase) decrease in inventories 7,433 5,161 (3,467)
(Increase) decrease in prepaid and accrued income taxes 2,585 1,368 (51)
Decrease (increase) in other assets (388) 42 (636)
Increase in accounts payable 1,350 179 12,846
(Decrease) increase in due to affiliates 2,497 (25,233) (6,036)
(Decrease) increase in accrued interest 165 (312) (173)
Increase in other accrued liabilities 733 4,843 945
------ -------- ------
Net cash provided by operating activities 41,721 25,154 42,541
-------- -------- --------
Cash flows from investing activities:
Capital expenditures, net (780) (1,029) (1,173)
Purchase of investments, net -- -- (19,900)
------- ------- ---------
Net cash used in investing activities (780) (1,029) (21,073)
-------- --------- ----------
Cash flows from financing activities:
Payments on long-term debt (27,034) (32,145) (11,361)
Payment of dividends (7,000) (7,000) (7,000)
-------- -------- --------
Net cash used in financing activities (34,034) (39,145) (18,361)
--------- ------- ---------
Net increase (decrease) in cash and cash equivalents 6,907 (15,020) 3,107
Cash and cash equivalents:
Beginning of the year 24,023 30,930 15,910
-------- -------- --------
End of year $ 30,930 $ 15,910 $ 19,017
========= ========= =========
Supplemental cash flow disclosures: Cash paid during the year for:
Interest $ 4,431 $ 4,041 $ 2,082
========= ========= =========
Income taxes $ 3,148 $ 4,968 $ 7,831
========= ========= =========
Supplemental schedule of noncash investing and
financing activities:
Acquisition of property, plant and equipment under
capital lease obligations -- $ 290 --
=========== ========= =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
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.
The capital contribution for the formation of the Company was made by
Nisshin Steel Co., Ltd. (Nisshin) and Wheeling-Pittsburgh Corporation
(Wheeling-Pittsburgh). At December 31, 1996, Nisshin and Wheeling-Pittsburgh
owned 64.3% and 35.7% 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 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:
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." This statement requires that securities
be classified as trading, held-to-maturity, or available-for-sale. The
Company's investments, which consist of certificates of deposits and
commercial paper, are classified as held-to-maturity and are recorded at
cost which approximates fair value. The certificates of deposit amounted
to $15,000 at December 31, 1996 and are maintained at one financial
institution. The commercial paper amounted to $4,900 at December 31,
1996. The Company had no investments at December 31, 1995.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization.
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 or amortization are removed from
the accounts. Gains or losses on sales are reflected in earnings.
54
<PAGE>
Wheeling-Nisshin, Inc.
Notes To Financial Statements
(Dollars in thousands)
Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the assets.
DEFERRED PRE-OPERATING COSTS:
Certain costs directly related and incremental to the Company's second
production line were deferred until commencement of commercial
operations in March 1993. These costs, which were an integral part of
the process of bringing the new line into commercial production and,
therefore, benefited future periods, were being amortized using the
straight-line method over a three-year period. In 1995, management
determined that they had fully recovered the deferred pre-operating
costs related to the new production line. Accordingly, the remaining
unamortized cost at December 31, 1995 of $390 was charged to operations
in 1995.
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 uses SFAS 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:
Earnings per share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding during each period.
3. INVENTORIES:
Inventories consist of the following at December 31:
1995 1996
---- ----
Raw materials $ 6,753 $ 10,645
Finished goods 12,013 11,588
-------- --------
$ 18,766 $ 22,233
======== ========
Had the Company used the first-in, first-out (FIFO) method to value
inventories, the cost of inventories would have been approximately $850
lower than the LIFO value at December 31, 1995 and $12 lower than the
LIFO value at December 31, 1996.
55
<PAGE>
Wheeling-Nisshin, Inc.
Notes To Financial Statements
(Dollars in thousands)
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following at December 31:
1995 1996
---- ----
Buildings $ 34,631 $ 34,665
Land improvements 3,098 3,097
Machinery and equipment 160,804 161,723
Office equipment 3,215 3,436
-------- --------
201,748 202,921
Less accumulated depreciation
and amortization (57,064) (69,779)
--------- ---------
144,684 133,142
Land 1,032 1,032
--------- ---------
$ 145,716 $ 134,174
========= =========
Depreciation expense was approximately $12,765, $13,651 and $12,715 in 1994,
1995, and 1996, respectively.
5. LONG-TERM DEBT:
Long-term debt consists of the following at December 31:
1995 1996
---- ----
Industrial revenue bonds for the original production facility, which
accrued interest at 5/8% over the LIBOR rate, as adjusted for periods
ranging from three months to one year, as elected by the Company. The
bonds, which were payable in semi-annual installments of $3,309 plus
interest,
were paid-off in September 1996. $ 4,544 --
Industrial revenue bonds for the second production line accruing
interest at 1/2% 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 at December 31, 1996 was 6.468%. The bonds are
payable in 17 equal semi-annual installments
of $3,353 plus interest through March 2000. 31,647 $ 24,941
West Virginia Economic Development Authority (WVEDA) loan accruing
interest at 4%, payable in monthly installments of $2 including
interest through
January 2001. 106 90
Capital lease obligations accruing interest at rates ranging from 10% to
13.8%, payable in monthly installments
through January 2000. 379 284
------ ------
36,676 25,315
Less current portion 11,361 6,828
------- --------
$ 25,315 $ 18,487
======== ========
56
<PAGE>
Wheeling-Nisshin, Inc.
Notes To Financial Statements
(Dollars in thousands)
Based on the interest rates currently available, management believes
that the carrying amount of long-term debt is a reasonable estimation of
fair value.
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 1994, 1995 and
1996.
The approximate annual maturities on all long-term debt for each of the
five years ending December 31 are: $6,828 in 1997; $6,835 in 1998;
$6,784 in 1999; $4,848 in 2000 and $20 in 2001.
6. INCOME TAXES:
The provision for income taxes for the years ended December 31 consist
of:
1994 1995 1996
---- ---- ----
Current:
U.S. Federal $ 2,597 $ 5,838 $ 7,366
State 263 251 414
Deferred 4,300 5,449 5,330
------- -------- -------
$ 7,160 $11,538 $13,110
======= ======= =======
Reconciliation of the federal statutory and effective tax rates for
1994, 1995 and 1996 are as follows:
1994 1995 1996
---- ---- ----
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes 1.5 0.8 1.2
Other, net 4.2 3.2 1.6
----- ---- -----
40.7% 39.0% 37.8%
====== ====== =====
The deferred tax assets and liabilities recorded on the balance sheets
as of December 31 are as follows:
1995 1996
---- ----
Deferred tax assets:
Federal AMT credit carryforwards $2,670 --
Accrued expenses 1,060 $ 1,376
Other 777 961
------ -------
4,507 2,337
------- -------
Deferred tax liabilities:
Depreciation and amortization 22,504 22,491
Other 919 1,625
------- -------
23,423 24,116
-------- --------
$ 18,916 $ 21,779
======== ========
The Company has available tax credit carryforwards of approximately
$60,000 which may be used to offset up to 80% of future West Virginia
state tax liabilities through 2008. A valuation allowance for the entire
amount of the credit has been recognized in the accompanying financial
57
<PAGE>
Wheeling-Nisshin, Inc.
Notes To Financial Statements
(Dollars in thousands)
statements. Accordingly, as the credit is utilized, a benefit is
recognized through a reduction of the current state income tax
provision. Such benefit amounted to approximately $20 in 1994, $640 in
1995 and $998 in 1996.
7. 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
approximately $226 in 1994, $266 in 1995 and $336 in 1996.
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. Profit-sharing expense was approximately $2,862 in
1994, $5,546 in 1995 and $6,505 in 1996.
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 for 1996 totaled $68.
8. RELATED PARTY TRANSACTIONS:
The Company has an 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 approximately
$180,719, $187,548 and $161,380 of raw materials and processing services
from Wheeling-Pittsburgh in 1994, 1995 and 1996, respectively. The
amounts due Wheeling-Pittsburgh for such purchases are included in Due
To Affiliates in the accompanying balance sheets.
During 1996, the Company sold products to Wheeling-Pittsburgh. Such
sales totaled $6,511 in 1996 of which $901 remained unpaid and is
included in Trade Accounts Receivable in the accompanying balance sheet
at December 31, 1996. The Company also sells product to Unimast, Inc.,
an affiliate of Wheeling-Pittsburgh. Such sales totaled $1,537 in 1996
and $1,389 in 1995, of which $358 remained unpaid and was included in
Trade Accounts Receivable in the accompanying balance sheet at December
31, 1995.
9. 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 has sustained in the amount of approximately
$400.
58
<PAGE>
Wheeling-Nisshin, Inc.
Notes To Financial Statements
(Dollars in thousands)
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 as a result of its refusal to resolve
their claims amicably prior to the trial. This motion for counsel fees
is pending before the court.
The Company filed for a motion for a new trial, which was not addressed
by the trial court, and filed an appeal to the Superior Court of
Pennsylvania on February 14, 1997. Concurrent with this filing, the
Company posted a bond approximating $10,000 that will be held by the
court pending the appeal. Management also intends to oppose the motion
by the plaintiffs for counsel fees. Although the Company has been
advised by its Special Counsel that it has various legal bases for
relief, litigation is subject to many uncertainties and, as such, the
Company is presently unable to predict the outcome of its motion for
post-trial relief, its appeal and its opposition to the plaintiffs'
motion for counsel fees. No liability has been recorded by the Company
related to this litigation in the accompanying financial statements at
December 31, 1996. If the Company is unsuccessful in these motions, the
ultimate resolution of these matters may have a material effect on the
Company's results of operations and cash flows in the year of final
determination.
10. FAIR VALUE OF FINANCIAL INVESTMENTS.
The estimated fair values and the methods used to estimate those values
are disclosed below:
INVESTMENTS:
The fair values of commercial paper approximates its carrying values
and were determined based on quoted market prices.
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.
11. SIGNIFICANT RISKS:
Approximately 66% of the Company's employees are covered by a collective
bargaining agreement which expires during 1997.
59
<PAGE>
(a) 3. EXHIBITS
2.1 Confirmation Order of the United States Bankruptcy Court for
the Western District of Pennsylvania, dated December 18, 1990,
containing the Amended Joint Plan of Reorganization of
Wheeling-Pittsburgh Steel Corporation, dated October 18, 1990,
as modified and approved -- Incorporated herein by reference to
Exhibit 2.1 to WPC's Form 8-K filed December 28, 1990.
2.2 Form of Plan and Agreement of Merger, dated as of July 26, 1994
among WPC, WHX and WP Merger Co. -- Incorporated herein by
reference to Exhibit 2.2. to Company's Form S-4 Registration
Statement (No. 33-53591).
3.1 Certificate of Incorporation of the Company--Incorporated
herein by reference to Exhibit 3.2 to the Company's Form S-4
Registration Statement (No. 33-53591).
3.2 By-laws of the Company--Incorporated herein by reference to
Exhibit 3.3 of the Company's Form S-4 Registration Statement
(No. 33-53591).
4.1 Indenture ("Senior Note Indenture"), between WPC and Bank One,
Columbus, NA, as Trustee -- Incorporated herein by reference to
Exhibit 4.1 to WPC's Form S-3 Registration Statement (No.
33-50709).
4.2 Form of First Supplemental Indenture to the Senior Note
Indenture between, WPC, WHX and Bank One, Columbus, NA --
Incorporated herein by reference to Exhibit 4.5 to the
Company's Form S-4 Registration Statement (No. 33-53591).
4.3 Pooling and Servicing Agreement dated as of August 1, 1994,
among Wheeling- Pittsburgh Funding, Inc., WPSC and Bank One,
Columbus, NA -- Incorporated herein by reference to Exhibit
4.13 to the WPC's Form S-1 Registration Statement dated
February 24, 1995.
10.1 Form of Key Employee Deferred Compensation
Agreement--Incorporated herein by reference to Exhibit 10.1 to
the 1990 10-K.
10.2 Cooperation Agreement dated February 7, 1984 between the
Company and Nisshin Steel Co., Ltd.--Incorporated herein by
reference to Exhibit 10.24 to the Company's Form S-1
Registration Statement No. 2-89295 as filed with the Securities
and Exchange Commission on February 7, 1984.
10.3 Agreement dated April 30, 1993 between Registrant and James L.
Wareham--Incorporated herein by reference to Exhibit 10.4 to
the Company's Form 10- K for the fiscal year ended December 31,
1993.
10.4 Form of Key Employee Severance Agreement--Incorporated herein
by reference to Exhibit 10.8 to the 1990 10-K.
10.5 Second Amended and Restated Shareholders Agreement dated as of
November 12, 1990 between the Company and Nisshin Steel Co.
Ltd.--Incorporated herein by reference to Exhibit 10.9 to the
1990 10-K.
10.6 Management Agreement dated as of January 3, 1991 between the
Company and WPN Corp.--Incorporated herein by reference to
Exhibit 10.11 to the 1990 10-K.
10.7 Amendment No. 1 to Management Agreement dated as of January 1,
1993 between the Company and WPN Corp.-Incorporated herein by
reference to Exhibit 10.8 to the Company's Form S-2
Registration Statement filed February 23, 1993 (the "February
Form S-2").
10.8 Amendment No. 2 to Management Agreement dated as of April 11,
1994 between the Company and WPN Corp.
60
<PAGE>
*10.9 Amendment No. 3 to Management Agreement dated as of April 1,
1996 between the Company and WPN Corporation.
10.10 1991 Incentive and Nonqualified Stock Option Plan of the
Company--Incorporated herein by reference to Exhibit 10.13 to
the Company's Form S-2 Registration Statement (No. 33-43139).
10.11 Wheeling-ISPAT Partners general partnership agreement dated
September 21, 1994 by and between WP Steel Venture Corporation
and ISPAT Mexicana, S.A. De C.V.--Incorporated herein by
reference to exhibit 10.1 to the Company's Form 10-Q for the
quarter ended September 30, 1994.
10.12 Second Amended and Restated Credit Agreement dated December 28,
1995, among WPSC, the lenders party thereto, and Citibank,
N.A., as Agent.
*10.13 Amendment No. 1 to the Second Amended and Restated Credit
Agreement dated as of December 30, 1996 among WPSC, the lenders
party thereto and Citibank, N.A. as Agent.
*10.14 Agreement dated as of February 7, 1997 by and between the
Company and John R. Scheessele.
*21.1 Subsidiaries of Registrant.
*23.1 Consent of Price Waterhouse LLP.
*23.2 Consent of Coopers & Lybrand LLP.
*27 Financial Data Sheet
* - filed herewith.
(b) REPORTS ON FORM 8-K.
None
61
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has signed this report by the undersigned,
thereunto duly authorized in the City of New York, State of New York on March
7, 1997.
WHX CORPORATION
By /s/ John R. Scheessele March 4, 1997
------------------------------- ------------------
John R. Scheessele Date
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By /s/ Frederick G. Chbosky March 4, 1997
- ---------------------------------------- ---------------
Frederick G. Chbosky Date
(Principal Financial Officer and Principal Accounting Officer)
By /s/ Ronald LaBow March 5, 1997
- --------------------------------------- ---------------
Ronald LaBow, Chairman of the Board Date
By /s/ Neil D. Arnold March 4, 1997
- --------------------------------------- ---------------
Neil D. Arnold, Director Date
By /s/ Paul W. Bucha March 7, 1997
- --------------------------------------- ----------------
Paul W. Bucha, Director Date
By /s/ Robert A. Davidow March 7, 1997
- --------------------------------------- -----------------
Robert A. Davidow, Director Date
By /s/ William Goldsmith March 5, 1997
- --------------------------------------- -----------------
William Goldsmith, Director Date
By /s/ Marvin L. Olshan March 10, 1997
- -------------------------------------- -----------------
Marvin L. Olshan, Director Date
By /s/ John R. Scheessele March 4, 1997
- -------------------------------------- ------------------
John R. Scheessele, Director Date
By /s/ Raymond S. Troubh March 7, 1997
- -------------------------------------- ------------------
Raymond S. Troubh, Director Date
By /s/ Lynn R. Williams March 5, 1997
- -------------------------------------- -----------------
Lynn R. Williams, Director Date
62
AMENDMENT NO. 3
TO
MANAGEMENT AGREEMENT
AMENDMENT NO. 3 dated as of April 1, 1996 to the Management
Agreement dated as of January 3, 1991, as amended by Amendment No. 1 dated as of
January 1, 1993 and as further amended by Amendment No. 2 dated as of April 11,
1994 (as amended, the "Management Agreement") by and between WPN Corp. ("WPN"),
a New York corporation having an office at 126 Lower Broadford Road, Bellevue,
Idaho 83313 and WHX Corporation (the "Company"), a Delaware corporation having
an office at 110 East 59th Street, New York, New York 10022, pursuant to its
assumption of the Management Agreement from Wheeling-Pittsburgh Corporation
("WPC") under the terms of the Contribution and Assumption Agreement dated as of
July 26, 1994 between WPC and the Company.
W I T N E S S E T H :
WHEREAS, the parties hereto have entered into a Management
Agreement pursuant to which WPN is furnishing certain management, advisory and
consulting services to the Company; and
WHEREAS, in light of the financial performance of the Company
and Wheeling-Pittsburgh Steel Corporation, a wholly owned subsidiary of the
Company, and the efforts of WPN in assisting the Company to improve its capital
base and financial condition, the parties to the Management Agreement wish to
extend the term and renewal period of the Management Agreement.
<PAGE>
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. The first sentence of Section 2 of the Management Agreement
is amended to read as follows:
"This Agreement shall continue effective as of April
1, 1996 for a two (2) year term and shall
automatically renew for successive two (2) year
periods unless and until terminated by either party,
on any anniversary date, upon not less than sixty
(60) days prior written notice to the other."
2. Except as modified above, the terms and conditions of the
Management Agreement are hereby confirmed and shall remain in full force and
effect.
3. This Amendment No. 3 shall be effective retroactive to
April 1, 1996.
IN WITNESS WHEREOF, the parties have duly executed this
Amendment No. 3 as of the date first above written.
WPN CORP.
By: /s/ Ronald LaBow
-------------------------------------
Ronald LaBow, President
WHX CORPORATION
By: /s/ Howard Mileaf
--------------------------------
Howard Mileaf
Vice President - Special Counsel
-2-
EXECUTION COPY
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 30, 1996
AMENDMENT NO. 1 TO THE SECOND AMENDED AND RESTATED CREDIT AGREEMENT
among WHEELING-PITTSBURGH STEEL COMPANY, a Delaware corporation (the
"BORROWER"), the banks, financial institutions and other institutional lenders
parties to the Credit Agreement referred to below (collectively, the "LENDERS")
and CITIBANK, N.A., as agent (the "AGENT"), and as issuing agent (the "ISSUING
AGENT").
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders, the Agent and the Issuing Agent have
entered into a Second Amended and Restated Credit Agreement dated as of December
28, 1995 (as amended, supplemented or otherwise modified through the date
hereof, the "CREDIT AGREEMENT"). Capitalized terms not otherwise defined in this
Amendment have the meanings specified in the Credit Agreement.
(2) The Borrower and the Lenders have agreed to amend the Credit
Agreement as hereinafter set forth.
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 2, hereby amended as follows:
(a) Section 1.01 is amended as follows:
(i) Section 1.01 is amended by adding the following new defined
term in appropriate alphabetical order:
"PARENT LOANS" means intercompany loans in the form of
cash advances made by WHX from time to time, since September
30, 1996, to the Borrower or any of the Guarantors.
<PAGE>
2
(ii) Section 1.01 is further amended by deleting the defined term
"Net Worth" and substituting therefor the following defined term:
"NET WORTH of any Person means, at any date, the excess
of (a) the Total Assets of such Person at such date OVER (b)
the Total Liabilities of such Person at such date MINUS the
aggregate principal amount of Parent Loans received by such
Person and outstanding at such date MINUS, in the case of the
Borrower, the aggregate amount of Keepwell Payments that are
designated as loans or advances made on behalf of such Person
on or prior to such date."
(b) Schedule 4.16 is amended to include the following:
"A worker stoppage began and has continued to date by
the USWA at eight plants operated by the Borrower in
Ohio, Pennsylvania and West Virginia."
(c) Section 5.1 is amended by deleting the amounts set
opposite the following dates and substituting therefor the amount set
forth below opposite each such date:
"March 31, 1997 300,000,000
June 30, 1997 290,000,000"
(d) Section 5.3 is amended by deleting the ratios set opposite
the dates December 31, 1996, March 31, 1997 and June 30, 1997 and
substituting therefor the word "none".
(e) Section 7.2(h) is amended in full to read as follows:
"(h) Indebtedness (i) evidenced by the Holdings Note,
(ii) under the Keepwell Payments made to the Borrower by WHX
and/or Holdings pursuant to the Keepwell Agreement and (iii)
under Parent Loans;"
(f) Section 7.4 is amended as follows:
(i) Section 7.4(b)(v) is amended by inserting after
the phrase "or other Loans or Advances" thereof the phrase
"(other than Parent Loans)".
(ii) Section 7.4(b) is amended by deleting the word
"and" at the end of subsection (vi) thereof, by redesignating
subsection "(vii)" thereof as subsection "(viii)" and by
adding a new subsection (vii) to read as follows:
<PAGE>
3
"(vii) with the consent of the Agent,
payments made by a Loan Party to repay Parent Loans
and".
(iii) Section 7.4(b) is further amended by deleting
the phrase "(v), (vi) or (vii) above" from the proviso at the
end thereof and substituting therefor the phrase "(v), (vi),
(vii) or (viii) above".
(iv) Section 7.4(b) is further amended by inserting
after the phrase "Keepwell Payment was made" in clause (C) of
the proviso at the end thereof the phrase "and only so long as
no Parent Loans are outstanding".
SECTION 2. CONDITIONS OF EFFECTIVENESS. This Amendment shall
become effective as of the date first above written on the Business Day when,
and only when, on or before March 4, 1997 (or such later date as the Agent shall
agree), the following conditions shall have been satisfied:
(a) The Agent shall have received counterparts of this
Amendment executed by the Borrower, each other Loan Party and the
Majority Lenders or, as to any of the Lenders, advice satisfactory to
the Agent that such Lenders have executed this Amendment.
(b) The Agent shall have received a certificate signed by a
duly authorized officer of the Borrower stating that:
(i) The representations and warranties contained in
the Credit Agreement and each Loan Document are correct on and
as of the date of such certificate as though made on and as of
the date hereof other than any such representations or
warranties that, by their terms, refer to a date other than
the date of such certificate; and
(ii) No event has occurred and is continuing that
constitutes a Default or an Event of Default.
The effectiveness of this Amendment is conditioned upon the accuracy of the
factual matters described herein. This Amendment is subject to the provisions of
Section 10.1 of the Credit Agreement.
SECTION 3. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND
THE NOTES. (a) On and after the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of
like import referring to the Credit Agreement, and each reference in each of the
Loan Documents to "the Credit Agreement",
<PAGE>
4
"thereunder", "thereof" or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement, as amended by
this Amendment.
(b) The Credit Agreement and each of the Loan Documents, as
specifically amended by this Amendment, are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any Lender, the Agent, or the Issuing Agent under
the Credit Agreement or any Loan Document, nor constitute a waiver of any
provision of the Credit Agreement or any Loan Document.
SECTION 4. COSTS AND EXPENSES. The Borrower agrees to pay on
demand all costs and expenses of the Agent and the Issuing Agent in connection
with the preparation, execution, delivery and administration, modification and
amendment of this Amendment and the other instruments and documents to be
delivered hereunder (including, without limitation, the reasonable fees and
expenses of counsel for the Agent and the Issuing Agent) in accordance with the
terms of Section 10.4(a) of the Credit Agreement.
SECTION 5. EXECUTION IN COUNTERPARTS. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
<PAGE>
5
SECTION 6. GOVERNING LAW. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
BORROWER
WHEELING-PITTSBURGH STEEL
CORPORATION
By: /s/ F.G. Chbosky
-----------------------------
Name: F.G. Chbosky
Title:Executive Vice President
Chief Financial Officer
AGENT
CITIBANK, N.A.,
as Agent
By: /s/ Keith P. Karako
--------------------
Name: Keith P. Karako
Title: Vice President
LENDERS
CITICORP USA, INC.
By: /s/ Keith P. Karako
--------------------
Name: Keith P. Karako
Title: Vice President
<PAGE>
CORESTATES BANK, N.A.
By: /s/ Myron Landau
----------------
Name: Myron Landau
Title: Vice President
BANKAMERICA BUSINESS CREDIT, INC.
By:_______________________________
Name:
Title:
STAR BANK, N.A.
By: /s/ Mike Ellert
------------------------------
Name: Mike Ellert
Title:Vice President
<PAGE>
NATIONSBANK, N.A.
By:_______________________________
Name:
Title:
NATIONAL CITY COMMERCIAL
FINANCE, INC.
By: /s/ Joseph L. White
-----------------------------
Name: Joseph L. White
Title: Vice President
ISSUER (AND NOT LENDER)
CITIBANK, N.A.
By:/s/ Keith P. Karako
-------------------------
Name: Keith P. Karako
Title: Vice President
<PAGE>
8
CONSENTED TO AND ACKNOWLEDGED:
WHEELING-PITTSBURGH CORPORATION
By: /s/ F. G. Chbosky
------------------------------
Title: Chief Financial Officer
WHEELING CONSTRUCTION PRODUCTS, INC.
By: /s/ F. G. Chbosky
------------------------------
Title: Treasurer
PITTSBURGH-CANFIELD CORPORATION
By: /s/ F. G. Chbosky
------------------------------
Title: Treasurer
UNIMAST INCORPORATED
By: /s/ Arthur L. Whitman
------------------------------
Title: Vice President/Secretary
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT effective as of the 7th day of February, 1997, by
and between WHEELING-PITTSBURGH STEEL CORPORATION ("WPSC"), a Delaware
corporation with a principal place of business at 1134 Market Street, Wheeling,
West Virginia, 26003, WHX CORPORATION ("WHX"), a Delaware corporation with a
principal place of business at 110 East 59th Street, New York, New York, 10022
and WHEELING-PITTSBURGH CORPORATION ("WPC"), a Delaware corporation with a
principal place of business at 1134 Market Street, Wheeling, West Virginia,
26003 (WPSC, WHX and WPC are collectively referred to as the "Company") and JOHN
R. SCHEESSELE (the "Executive").
WHEREAS, the Company desires to employ the Executive as the President,
Chairman of the Board and Chief Executive Officer of WPSC, the President of WHX
and the President of WPC and the Executive desires to be employed by the Company
upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto do agree as follows:
1. EMPLOYMENT.
(a) The Company hereby employs the Executive, and the
Executive hereby accepts such employment, as President, Chairman of the Board
and Chief Executive Officer of WPSC, as President of WPC and as President of WHX
upon the terms and subject to the
<PAGE>
conditions contained herein. Immediately following the execution of this
Agreement and at all other appropriate times thereafter, WHX, WPC and WPSC shall
take all action to elect the Executive as Chairman of the Board, President and
Chief Executive Officer of WPSC, President of WHX and President of WPC.
(b) WHX agrees that immediately following the execution of
this Agreement and at each election of directors of WHX, to the extent such
subsequent election coincides with the expiration of Executive's term as
director, to nominate Executive as a director of WHX, and, immediately following
the execution of this Agreement and at each election of directors of WPSC, to
nominate Executive as a director and as Chairman of the Board of Directors of
WPSC. Executive agrees that subsequent to an Initial Public Offering (as
hereinafter defined) of WPC or a "spin-off" of any portion of the shares of
Common Stock of WPC, Executive will resign as an officer and director of WHX or
in the case of an Initial Public Offering by WPSC or a "spin-off" of any portion
of the shares of Common Stock of WPSC, as an officer of WPC also.
(c) WPSC, WPC and WHX represent and warrant to Executive that this
Agreement has been duly and validly authorized and executed by and on behalf of
each of them in accordance with their respective Certificate of Incorporation
and By-Laws and that this Agreement constitutes the lawful and valid obligation
of WPSC, WPC and WHX enforceable against each of WPSC, WPC and WHX in accordance
with its terms.
-2-
<PAGE>
2. DUTIES.
(a) The Executive shall perform all duties of the positions
referenced in paragraph 1 of this Agreement consistent with the powers and
duties of such offices set forth in WPSC's, WPC's or WHX's, as appropriate,
By-Laws, as well as any other duties, commensurate with the Executive's
positions that are assigned by the Board of Directors of WPSC, WPC or WHX.
(b) Throughout his employment hereunder, Executive shall
devote his full time, attention, knowledge and skills during reasonable business
hours in furtherance of the business of the Company and will faithfully,
diligently and to the best of his ability perform the duties described above and
further the best interests of the Company. During his employment, the Executive
shall not engage, and shall not solicit any employees of the Company to engage,
in any commercial activities which are in any way in competition with the
activities of the Company, or which may in any way interfere with the
performance of his duties or responsibilities to the Company.
(c) The Executive shall at all times be subject to, observe
and carry out such rules, regulations, policies, directions and restrictions as
the Company, consistent with Executive's rights and duties under this Agreement,
may from time to time establish and those imposed by law.
3. EXECUTIVE COVENANTS. In order to induce the Company to enter into
this Employment Agreement, the Executive hereby agrees as follows:
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<PAGE>
(a) Except when disclosure is in the interest of the Company
or is compelled by law, or disclosure is consented to or directed by the
Chairman or the Board of Directors of WPC, WHX or WPSC, the Executive shall keep
confidential and shall not divulge to any other person or entity, during the
term of the Executive's employment or thereafter, any of the business secrets or
other confidential information regarding the Company or the Company's other
subsidiaries which have not otherwise become public knowledge.
(b) All papers, books and records of every kind and
description relating to the business and affairs of the Company, whether or not
prepared by the Executive, shall be the sole and exclusive property of the
Company, and the Executive shall surrender them to the Company at any time upon
request by the Chairman or the Board of WPC, WHX or WPSC.
(c) During the term of employment hereunder, and, if his
employment is terminated by the Company pursuant to Section 9 hereof, for a
period of one (1) year thereafter, the Executive shall not, without the prior
written consent of the Board of WHX (i) participate as a director, stockholder
or partner, or have any direct or indirect financial interest as creditor, in
any business which directly or indirectly competes, within the United States of
America, with the Company or the Company's other subsidiaries which exist as of
the date of the termination of this Agreement (the "Existing Subsidiaries");
provided, however, that nothing in this Agreement shall restrict the Executive
from
-4-
<PAGE>
holding up to two (2%) percent of the outstanding capital stock or other
securities of any publicly traded entity; (ii) solicit any customers of the
Company or its Existing Subsidiaries on behalf of himself, or any other person,
firm or company; or (iii) directly or indirectly, act in the capacity of an
executive officer, employee or in any other capacity for any company or other
entity which competes with WPSC in the carbon steel manufacturing industry and
which has at least 5% of its annual dollar sales comprised of products which
directly compete with the Company's or its subsidiaries' products; provided,
however, that nothing in this paragraph 3(c) shall prevent the Executive from
holding or maintaining any positions or interests presently held by him and
disclosed to the Board of WHX, or, held by him subsequent hereto with the
consent of the Board of WHX, including, but not limited to, the Executive's
interest in the Net Worth Participation Agreement with Warren Consolidated
Industries.
(d) The parties agree that the Executive's services are unique
and that any breach or threatened breach of the provisions of this Section 3
will cause irreparable injury to the Company and that money damages will not
provide an adequate remedy. Accordingly, the Company shall, in addition to other
remedies provided by law, be entitled to such equitable and injunctive relief as
may be necessary to enforce the provisions of this Section 3 against the
Executive or any other person or entity participating in such breach or
threatened breach.
-5-
<PAGE>
Nothing contained herein shall be construed as prohibiting the Company from
pursuing any other and additional remedies available to it, at law or in equity,
for such breach or threatened breach including any recovery of damages from the
Executive or termination of his employment as provided in Paragraph 9(b).
4. BASE SALARY AND BONUSES. As full compensation for Executive's
services hereunder and in exchange for his promises contained herein, the
Company shall compensate the Executive in the following manner (subject to
Paragraph 4(c)):
(a) BASE SALARY. The Company shall compensate Executive at the
base salary rate of Four Hundred Thousand United States Dollars ($400,000 U.S.)
per annum, payable in equal installments on the same basis as other senior
salaried officers of the Company. Such annual salary may be increased in the
future by such amounts and at such times as the Board of WHX or the Compensation
Committee thereof shall deem appropriate in its sole discretion.
(b) ANNUAL BONUSES. Beginning with the calendar year 1997 and
in each year or portion thereof thereafter during the term of this Agreement,
the Board of WHX or the Compensation Committee of WHX shall consider the
Executive for a cash performance bonus in accordance with the following terms:
The actual amount and timing of such bonus, if any, shall be determined in good
faith based on criteria reasonably deemed to be relevant to such determination
including, without limitation, bonuses paid to other senior executives of the
Company, the
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<PAGE>
overall performance of the Company as measured by guidelines used to determine
the bonuses of other senior executives of the Company and transactions effected
for the benefit of the Company that are outside of the ordinary course of
business and directly or indirectly accomplished through the efforts of the
Executive (e.g., business combinations, corporate partnering and other similar
transactions).
(c) WITHHOLDINGS. The amounts set forth in subparagraphs (a) and (b)
above shall be subject to appropriate payroll withholding and any similar
deductions required by law.
(d) INITIAL PUBLIC OFFERING. Upon the consummation of an underwritten
initial public offering under the Securities Act of 1933, as amended (an
"Initial Public Offering") by WPC or WPSC (or any successor or assign of either
entity) during the term of this Agreement, the Executive and certain other
senior executives of the Company selected by the Board of WHX shall be granted
options to purchase, if all of the options are exercised, 15% of the Common
Stock of the public company outstanding immediately following the Initial Public
Offering, at an exercise price equal to 85% of the Initial Public Offering price
(such options are herein referred to as the "Option Pool"). To the extent
allowable under the Internal Revenue Code of 1986, as amended, such options
shall be "incentive stock options." Executive shall receive not less than 331/3%
of the Option Pool and not greater than 662/3% of the Option Pool, to be
determined by the Board of WHX in its sole discretion. From and after the
consummation of
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the Initial Public Offering or a "spin-off" of any portion of the shares of
Common Stock of WPC or WPSC, WHX shall be relieved of all obligations under this
Agreement, with no further action required by WHX to terminate its obligations
hereunder.
5. LONG-TERM INCENTIVE PLAN. The Executive shall be entitled to
participate, to the extent he is eligible under the terms and conditions
thereof, in any stock option plan, stock award plan, omnibus stock plan, or
similar incentive plan currently in existence or hereafter established by the
Company, in the manner and to the same extent as the Company's other senior
executive officers. Awards to the Executive under any such plan shall be made as
provided in such plans and at such times and in such amounts as shall be
determined in the sole discretion reasonably exercised of the Board of WHX
subject to confirmation by the Board of WHX or the Compensation Committee of
WHX. Except as provided above, the Executive shall not be entitled to
participate in the Incentive Plan or in any bonus incentive or similar plan for
salaried employees of the Company and Executive's right to receive a bonus shall
be exclusively determined by the provisions of Paragraph 4(b) hereof.
6. BENEFIT PLANS. During the term of his employment, the Executive
shall be entitled to participate in the Company's management employee benefits
and retirement plans, as they are in existence on the date of this Agreement, or
as they may be amended or added hereafter, to the same extent as the Company's
other senior executive officers. The Company shall be under no
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<PAGE>
obligation solely as a result of this Agreement to institute or continue the
existence of any employee benefit plan.
7. OTHER BENEFITS. The Executive shall be provided the
following additional benefits:
(a) LEASED AUTOMOBILE. A leased Buick, Cadillac, Continental
or comparable automobile of United States manufacture for his business and
personal use. The Company shall keep such automobile adequately insured and will
pay or reimburse the Executive for the cost of maintenance, repair and gasoline
for such automobile.
(b) CLUB MEMBERSHIPS. Reimbursement of the Executive for the
cost of his and his immediate family's membership in one country club and his
membership in one business club, and for his business-related use thereof.
(c) LEGAL AND TAX ADVICE. In recognition of the Executive's
need to carefully consider the terms herein, the reimbursement of Executive for
reasonable legal and tax advice, sought by him relative to this Agreement, which
is incurred prior to his execution of this Agreement, up to a maximum of Fifteen
Thousand United States Dollars ($15,000 U.S.).
(d) BUSINESS EXPENSE. Reimbursement of the Executive, upon
proper accounting, for reasonable expenses and disbursements incurred by him in
the course of the performance of his duties hereunder.
(e) VACATION. The Executive shall be entitled to four (4)
weeks of vacation each year of this Agreement or such longer
-9-
<PAGE>
period as shall be provided to senior executives of the Company, without
reduction in salary.
(f) ANNUAL PHYSICAL. The Company shall pay the cost, or
reimburse Executive for any cost not covered by health insurance, of one
comprehensive physical examination during each year of this Agreement.
8. SUPPLEMENTAL PENSION. As additional compensation, the Company will
provide nonqualified deferred compensation to the Executive after termination of
his employment. The amount of the deferred compensation will be measured solely
by the cash surrender value, at the time payment of the deferred compensation is
due, of one or more life insurance contracts (as defined in Internal Revenue
Code ss. 7702) on the life of the Executive, purchased by or on behalf of the
Company solely with the annual premiums described below. Such life insurance
contracts shall provide such insurance coverage and contract terms (consistent
with the premium limits described below), and shall be purchased from such one
or more insurance companies, as shall be acceptable to the Executive.
On the first business day of each calendar year (or the date of the
execution of this Agreement in the case of 1997) during the Executive's service
under this Agreement, the Company shall provide for the payment of total
premiums, under all such life insurance contracts in the aggregate, equal to the
sum of:
1. Fifty Thousand Dollars ($50,000) annual lump sum (or a
pro-rated portion for 1997) provided by the Company
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without reduction of the Executive's regular salary or
performance bonus otherwise payable under this Agreement
during the calendar year.
2. An additional annual amount equal to the amount, if any, by
which the Executive has elected to have his regular salary,
otherwise payable in cash during the calendar year, reduced
for this purpose.
3. An additional annual amount equal to the amount, if any, by
which the Executive has elected to have his performance bonus
(if any), otherwise payable in cash during the calendar year,
reduced for this purpose.
The Executive shall elect in writing, no later than the end of the
preceding calendar year, the specific amounts (or definite formula to determine
the specific amounts) of additional premiums to be paid for in each calendar
year by reduction of his regular salary or bonus payments. However, such
additional premium amounts shall be limited in the aggregate (or, at the
Executive's election, insurance coverage shall be augmented as necessary) so
that the additional premium amount applied to any insurance contract in any
calendar year is less than the amount that would cause such contract to be
classified as a modified endowment contract under Internal Revenue Code ss.
7702A.
The Company or the Deferred Compensation Trust described hereinafter
(the "Deferred Compensation Trust" or "Trust") shall be the sole owner of all
such life insurance contracts, except
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<PAGE>
that the Executive, at his election, shall have the right to designate the
beneficiary of death benefits under the contracts.
In the event of the Executive's death while the life insurance
contracts are in force and owned by the Company or the Deferred Compensation
Trust, the insurance companies' payment of death benefits thereunder to the
Executive's designated beneficiary (the "Beneficiary") shall totally discharge
the Company's obligation under this Section 8, except that the Company or the
Trust shall pay to such Beneficiary any salary or bonus reduction amounts
elected by the Executive for the calendar year in which his death occurs to the
extent that such amounts have not been paid to insurance companies as additional
premiums during that calendar year.
The Company will set aside assets in the Deferred Compensation Trust to
provide for the systematic funding, during the Executive's period of active
service, of the deferred compensation promised to the Executive under this
Agreement. Such Deferred Compensation Trust (which may also include assets set
aside to fund other similar deferred compensation obligations of the Company)
shall be irrevocable except in the event of the Company's subsequent bankruptcy
or insolvency, in which case the assets of the Trust shall be subject to the
claims of the Company's general creditors, including the Executive. The Company
intends, and the Executive acknowledges, that the Executive's rights under this
Agreement shall be solely those of a general creditor of the Company, and
nothing in this Agreement
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<PAGE>
nor in any instruments creating the Deferred Compensation Trust nor in any life
insurance contract, shall be construed to create any rights in the Executive
superior to those of other general creditors of the Company.
The Company intends that the Deferred Compensation Trust shall make all
payments due under this Agreement to the Executive or his Beneficiary, to the
extent the Trust is funded. The Executive acknowledges, on behalf of himself and
any Beneficiary claiming under him, that the Company is absolved of any
liability or responsibility for any payment due hereunder to the extent such
payment shall have been duly made to the Executive (or Beneficiary, as the case
may be) by the Deferred Compensation Trust.
The deferred compensation provided hereunder shall be paid to the
Executive in accordance with the life insurance contracts obtained pursuant to
the first paragraph of this Section 8.
9. DURATION AND TERMINATION.
(a) DURATION. The term of this Agreement shall commence on the
date hereof and shall terminate on the third anniversary hereof and shall
automatically be extended for successive three-year terms unless earlier
terminated pursuant to the provisions hereof, provided that the Executive shall
have the right to terminate this Agreement at the end of the initial term or any
succeeding term on not less than six (6) months prior written notice to the
Company (in which event all rights and benefits of Executive hereunder other
than the supplemental
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<PAGE>
pension benefit under Section 8 shall cease upon such termination's effective
date).
(b) TERMINATION AT ANY TIME BY COMPANY. This Agreement shall
be terminable by the Company at any time for any reason, including death or
Disability (as hereinafter defined) of the Executive, upon not less than 30
days' prior written notice to the Executive and all rights and benefits of the
Executive hereunder (other than those arising under Section 10 hereof) shall
cease, except that the Executive will have the right to receive from the Company
(i) a payment of One Million and Two Hundred Thousand Dollars ($1,200,000) (less
an amount equal to the portion of the Fifty Thousand ($50,000) Dollar per annum
payment made pursuant to Section 8 for the calendar year in which termination of
employment occurred which represents the pro-rata portion of the payment for the
balance of such calendar year, I.E., if the last date of employment is July 1,
then Twenty-Five Thousand ($25,000) Dollars shall be deducted from the One
Million and Two Hundred Thousand ($1,200,000) Dollars payment obligation) within
thirty (30) days of delivery of the notice of termination or within sixty (60)
days of the date of death or Disability of the Executive (the "Termination
Payment"), (ii) all amounts accrued but unpaid hereunder up to and including the
date of termination including, without limitation, any pro rata portion of the
Executive's salary or bonus remaining unpaid as of the date of termination,
(iii) all of the supplemental pension benefits accrued under Section 8 and (iv)
the continuation of all
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<PAGE>
medical insurance provided to the Executive as contemplated by Section 6 hereof
for a period of one (1) year following the termination date. Notwithstanding the
foregoing, if the Company terminated this Agreement "for cause", then no
Termination Payment shall be made to the Executive and all rights, benefits and
obligations of the Executive under this Agreement, except the Executive's rights
under Sections 8, 9(b)(ii) and (iii) and 10 hereof, shall cease. "For cause"
shall mean: (i) the Executive's willful and material breach in respect of his
duties under this Agreement if such breach continues unremedied for thirty (30)
days after written notice thereof from the Board of WPC, WHX or WPSC to the
Executive specifying the acts constituting the breach and requesting that they
be remedied; or (ii) the Executive is convicted or pleads guilty to a felony,
during the employment period other than for conduct undertaken in good faith in
furtherance of the interests of the Company. "Disability" shall mean that due to
illness, accident or other physical or mental incapacity, the Board of WPC, WHX
or WPSC has in good faith determined that the Executive is unable to
substantially perform his usual and customary duties under this Agreement for
more than four (4) consecutive months or six (6) months in any calendar year.
During any period that the Executive fails to perform his duties hereunder as a
result of incapacity due to Disability prior to the Executive's termination, the
Executive shall continue to receive his full
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<PAGE>
base salary, together with all benefits provided in this Agreement.
(c) RIGHTS OF TERMINATION BY EXECUTIVE. The Executive shall
have the right, by written notice to the Company, to elect to terminate this
Agreement within sixty (60) days following a Change of Control (as defined
below) or if the Executive is (i) demoted, (ii) no longer holds the office of
the President, Chairman or Chief Executive Officer or serves as a director of
WPSC, (iii) no longer holds the office of President of WPC (except following an
Initial Public Offering of WPSC or a "spin-off" of any portion of the shares of
Common Stock of WPSC), or (iv) no longer holds the office of President or serves
as a director of WHX (except following an Initial Public Offering of WPC or WPSC
or a "spin-off" of any portion of the shares of Common Stock of WPC or WPSC). In
the event that Executive makes such election, the Executive shall be entitled to
receive from the Company the items set forth in Paragraph 9(b)(i) through
9(b)(iv) within sixty (60) days of receipt by the Company of a written notice of
Executive's election.
(d) CHANGE IN CONTROL. For the purposes of this Agreement, a
"Change in Control" means (i) the, direct or indirect, sale, lease, exchange or
other transfer of all or substantially all (50% or more) of the assets of WPC,
WHX or WPSC to any individual, corporation, partnership, trust or other entity
or organization (a "Person") or group of Persons acting in concert as a
partnership or other group (a "Group of Persons")
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other than a Person (an "Affiliate") controlling, controlled by or under common
control with, any of WPC, WHX or WPSC, as the case may be, (ii) the merger,
consolidation or other business combination of WPC, WHX or WPSC with or into
another corporation with the effect that the shareholders of WPC, WHX or WPSC,
as the case may be, immediately prior to the business combination hold 50% or
less of the combined voting power of the then outstanding securities of the
surviving Person of such merger ordinarily (and apart from rights accruing under
special circumstances) having the right to vote in the election of directors,
(iii) the replacement of a majority of the Board of WPC, WHX or WPSC, over any
period of two years or less, from the directors who constituted the Board of
WPC, WHX or WPSC, as the case may be, at the beginning of such period, and such
replacement(s) shall not have been approved by the Board of WPC, WHX or WPSC, as
the case may be, as constituted at the beginning of such period, (iv) a Person
or Group of Persons shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") of securities
of WHX, or of WPC or WPSC following an Initial public Offering by such company,
representing 50% or more of the combined voting power of the then outstanding
securities of WHX, WPC or WPSC, as the case may be, ordinarily (and apart from
rights accruing under special circumstances) having the right to
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vote in the election of directors. Notwithstanding the foregoing, an Initial
Public Offering or a "spin-off" of any portion of the shares of Common Stock of
WPC or WPSC shall not constitute a Change in Control under this Agreement.
10. INDEMNIFICATION. The Company shall defend and hold the Executive
harmless to the fullest extent permitted by applicable law and the Company's
By-Laws and Certificate of Incorporation in connection with any claim, action,
suit, investigation or proceeding arising out of or relating to performance by
the Executive of services for, or action of the Executive as, or arising by
reason of the fact that the Executive is or was, a Director, officer, employee
or agent of the Company or any parent, subsidiary or affiliate of the Company,
or of any other person or enterprise at the Company's request. Expenses incurred
by the Executive in defending a claim, action, suit or investigation or
proceeding shall be paid by the Company in advance of the final disposition
thereof upon the receipt by the Company of any undertaking by or on behalf of
the Executive to repay such amount if it shall ultimately be determined that he
is not entitled to be indemnified hereunder. The foregoing rights are not
exclusive and do not limit any rights accruing to the Executive under any other
agreement or contract or under applicable law.
11. SUCCESSORS AND ASSIGNS. The rights and obligations of the Company
hereunder shall run in favor and be obligations of the Company, its successors
and assigns. The rights of the
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Executive hereunder shall inure to the benefit of the Executive's legal
representatives, executors, heirs and beneficiaries. Termination of Executive's
employment shall not operate to relieve him of any remaining obligations under
Section 3 hereof. The Company shall require any successor or assign (whether
direct or indirect, by purchase, merger, reorganization, consolidation,
acquisition of property or stock, liquidation or otherwise) to all or a
significant portion of the assets of the Company, by agreement in form and
substance satisfactory to the Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place.
Regardless of whether such agreement is executed by a successor, this Agreement
shall be binding upon any successor and assign in accordance with the operation
of law and such successor and assign shall be deemed the "Company" for purposes
of this Agreement.
12. ARBITRATION OF ALL DISPUTES.
(a) Any controversy or claim arising out of or relating to
this Agreement or the breach thereof (including the arbitrability of any
controversy or claim), shall be settled by arbitration in the City of
Pittsburgh, Commonwealth of Pennsylvania, by three arbitrators, one of whom
shall be appointed by the Company, one by the Executive and the third of whom
shall be appointed by the first two arbitrators. If the first two arbitrators
cannot agree on the appointment of a third arbitrator, then the third arbitrator
shall be appointed by the
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American Arbitration Association. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association, except with
respect to the selection of arbitrators which shall be as provided in this
Section 12. The cost of any arbitration proceeding hereunder shall be borne
equally by the Company and the Executive. The award of the arbitrators shall be
binding upon the parties. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof.
(b) In the event that it shall be necessary or desirable for
the Executive to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any or all of his rights under this
Agreement, and provided that the Executive substantially prevails in the
enforcement of such rights, the Company shall pay (or the Executive shall be
entitled to recover from the Company, as the case may be) the Executive's
reasonable attorneys' fees and costs and expenses in connection with the
enforcement of his rights, including the enforcement of any arbitration award,
up to $50,000 in the aggregate.
13. NOTICES. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been duly given upon
receipt if delivered by hand, sent by telecopier or courier, and three (3) days
after such communication is mailed within the continental United States by first
class certified mail, return receipt requested, postage prepaid, to the other
party, in each case addressed as follows:
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(a) if to WHX, WPC or WPSC, as the case may be:
WHX Corporation
110 East 59th Street
New York, New York 10022
Attn: Corporate Secretary
Wheeling-Pittsburgh Corporation
1134 Market Street
Wheeling, West Virginia 26003
Attn: Corporate Secretary
Wheeling-Pittsburgh Steel Corporation
1134 Market Street
Wheeling, West Virginia 26003
Attn: Corporate Secretary
With a copy (which shall not constitute notice) to:
Steven Wolosky, Esquire
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
(b) if to the Executive:
John R. Scheessele
78 Cohasset Drive
Hudson, Ohio 44236
with a copy (which shall not constitute notice) to:
William H. Schorling, Esquire
Klett Lieber Rooney & Schorling
40th Floor, One Oxford Centre
Pittsburgh, Pennsylvania 15219-6498
Addresses may be changed by written notice sent to the other party at the last
recorded address of that party.
14. SEVERABILITY. If any provision of this Agreement shall be adjudged
by any court of competent jurisdiction to be invalid or unenforceable for any
reason, such judgment shall not affect, impair or invalidate the remainder of
this Agreement.
15. PRIOR UNDERSTANDING. This Agreement embodies the entire
understanding of the parties hereto, and supersedes all
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other oral or written agreements or understandings between them regarding the
subject matter hereof. No change, alteration or modification hereof may be made
except in a writing, signed by all parties hereto. The headings in this
Agreement are for convenience and reference only and shall not be construed as
part of this Agreement or to limit or otherwise affect the meaning hereof.
16. EXECUTION IN COUNTERPARTS. This Agreement may be executed by the
parties hereto in counterparts, each of which shall be deemed to be original,
but all such counterparts shall constitute one and the same instrument, and all
signatures need not appear on any one counterpart.
17. CHOICE OF LAWS. Subject to the provisions of Paragraph 12 and
without regard to the effect of principles of conflicts of laws thereof,
jurisdiction over disputes with regard to this Agreement shall be exclusively in
the courts of the Commonwealth of Pennsylvania, and this Agreement shall be
construed in accordance with and governed by the laws of the Commonwealth of
Pennsylvania.
18. THIRD PARTY BENEFICIARY. The provisions of this Agreement as to the
Company shall also be binding upon and inure to the benefit of WPSC.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
WHEELING-PITTSBURGH STEEL CORPORATION
By:/S/ Frederick Chbosky
----------------------------------
Name: Frederick Chbosky
Title: Chief Financial Officer
WHX CORPORATION
By:/S/ Ronald LaBow
--------------------------------------
Name: Ronald LaBow
Title: Chairman of the Board
WHEELING-PITTSBURGH CORPORATION
By:/S/ Ronald LaBow
--------------------------------------
Name: Ronald LaBow
Title: Chairman of the Board
/S/ John R. Scheessele
----------------------------------
John R. Scheessele
EXHIBIT 21.1
WHX CORPORATION SUBSIDIARIES
WHX ENTERTAINMENT CORPORATION, a Delaware corporation
WHEELING-PITTSBURGH CAPITAL CORPORATION, a Delaware corporation
WPC LAND CORPORATION, an Ohio corporation
WHEELING-PITTSBURGH CORPORATION, a Delaware corporation
WHEELING-PITTSBURGH STEEL CORPORATION, a Delaware corporation
WHEELING CONSTRUCTION PRODUCTS, INC., a Delaware corporation
PITTSBURGH-CANFIELD CORPORATION, a Pennsylvania corporation
WHEELING-EMPIRE COMPANY, a Delaware corporation
WP STEEL VENTURE CORPORATION, a Delaware corporation
CONSUMERS MINING COMPANY, a Pennsylvania corporation
WHEELING-PITTSBURGH FUNDING, INC., a Delaware corporation
MINGO OXYGEN COMPANY, an Ohio corporation
W-P COAL COMPANY, a West Virginia corporation
UNIMAST INCORPORATED, an Ohio corporation
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No.33-54831) of WHX
Corporation of our report dated February 10, 1997 appearing on page 24 of this
Form 10-K.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Pittsburgh, Pennsylvania
March 10, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference (i) in the 1996 Form 10-K of
WHX Corporation dated March 10, 1997 and (ii) in the Prospectus constituting
part of the Registration Statement on Form S- 3 (No.33-54831) of WHX Corporation
of our report dated February 14, 1997 appearing on page 50 of this Form 10-K.
Coopers & Lybrand L.L.P.
- ------------------------
Coopers & Lybrand L.L.P.
Pittsburgh, Pennsylvania
March 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the WHX
Corporation Consolidated Financial Statements as of December 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 35,020
<SECURITIES> 447,562
<RECEIVABLES> 25,805
<ALLOWANCES> 1,149
<INVENTORY> 215,402
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0
614
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</TABLE>
