FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
-------------------------------------------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
FOR QUARTER ENDED MARCH 31, 1999 COMMISSION FILE NUMBER 033-89746
WHEELING-PITTSBURGH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 55-0309927
(State of Incorporation) (I.R.S. Employer
Identification No.)
1134 MARKET STREET
WHEELING, WV 26003
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 304-234-2400
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 / /
The number of shares of Common Stock issued and outstanding was 100 shares as of
April 30, 1999.
<PAGE>
WHEELING-PITTSBURGH CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
QUARTER ENDED MARCH 31,
1999 1998
---- ----
(In thousands)
NET SALES ............................................ $ 250,048 $ 259,121
OPERATING COSTS
Cost of goods sold ............................. 238,585 229,939
Depreciation ................................... 20,215 19,531
Selling, administrative and general expense .... 16,052 14,315
--------- ---------
274,852 263,785
--------- ---------
OPERATING LOSS ....................................... (24,804) (4,664)
Interest expense on debt ....................... 9,176 9,400
Other income ................................... 481 276
--------- ---------
LOSS BEFORE TAXES .................................... (33,499) (13,788)
Tax provision (benefit) ........................ (13,232) (4,837)
--------- ---------
NET LOSS ............................................. $ (20,267) $ (8,951)
========= =========
See notes to consolidated financial statements.
<PAGE>
WHEELING-PITTSBURGH CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---- ----
(Unaudited)
(Dollars and shares in thousands)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ -- $ 6,731
Trade receivables - net 61,176 39,504
Inventories:
Finished and semi-finished products 145,559 148,352
Raw materials 80,281 74,988
Other materials and supplies 20,722 33,373
Excess of LIFO over current cost 2,626 2,626
------------ ---------
249,188 259,339
Prepaid expenses and deferred charges 5,837 6,141
------------ ---------
Total current assets 316,201 311,715
Investments in associated companies 64,422 69,075
Property, plant and equipment at cost, less
accumulated depreciation 643,240 651,086
Deferred income taxes 163,806 147,162
Due from affiliates 44,842 44,693
Deferred charges and other assets 22,985 32,636
------------ -----------
$1,255,496 $1,256,367
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 120,124 $ 96,615
Short-term debt 49,997 66,999
Deferred income taxes - current 27,156 27,156
Other current liabilities 91,698 76,892
Long-term debt due in one year 217 217
------------ -----------
Total current liabilities 289,192 267,879
Long-term debt 349,745 349,775
Other employee benefit liabilities 413,623 414,955
Other liabilities 51,921 52,476
------------ ------------
1,104,481 1,085,085
------------ ----------
Stockholders' Equity:
Common Stock - $.01 par value - 100
shares issued and outstanding -- --
Additional paid-in capital 335,138 335,138
Accumulated earnings (deficit) (184,123) (163,856)
----------- ------------
Total stockholders' equity 151,015 171,282
----------- ------------
$1,255,496 $1,256,367
=========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
WHEELING-PITTSBURGH CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
1999 1998
---- ----
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (20,267) $ (8,951)
Items not affecting cash
from operating activities:
Depreciation 20,215 19,531
Other postretirement benefits 1,270 2,150
Income taxes (17,175) 322
Equity income in affiliated companies (1,378) (958)
Pension expense 1,518 5,556
(Gain)/loss on disposition of assets 2,479 --
Decrease (increase) in working capital elements:
Trade receivables (21,672) (28,015)
Trade receivables sold -- 15,500
Inventories 10,151 1,049
Other current assets 304 6,956
Trade payables 23,509 14,612
Other current liabilities 14,806 5,335
Other items - net (2,722) (8,333)
-------- ----------
Net cash provided by operating activities 11,038 24,754
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Plant additions and improvements (14,848) (6,755)
Investment in affiliates 1,031 --
Dividends from affiliated companies 5,000 5,000
--------- ----------
Net cash provided by (used in)
investing activities (8,817) (1,755)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings (30) (27)
Short term debt payments (17,002) (33,728)
Receivables from affiliates (149) 10,341
Letter of credit collateralization 8,229 415
--------- ----------
Net cash provided by (used in) financing activities (8,952) (22,999)
--------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (6,731) --
Cash and cash equivalents
at beginning of period 6,731 --
--------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ -- $ --
=========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
WHEELING-PITTSBURGH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
The consolidated balance sheet as of March 31, 1999, the
consolidated statement of operations and the consolidated statement of
cash flows for the three month periods ended March 31, 1999 and 1998 have
been prepared by Wheeling-Pittsburgh Corporation ("WPC" or "the Company")
without audit. In the opinion of management, all recurring adjustments
necessary to present fairly the consolidated financial position at March
31, 1999 and the results of operations and changes in cash flows for the
periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The results of
operations for the period ended March 31, 1999 are not necessarily
indicative of the operating results for the full year. Presentation of
earnings per share is not meaningful since the Company is a wholly-owned
subsidiary of WHX Corporation ("WHX").
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
BUSINESS SEGMENT
The Company is primarily engaged in one line of business and has
one industry segment, which is the making, processing and fabricating of
steel and steel products. The Company's products include hot rolled and
cold rolled sheet and coated products such as galvanized, prepainted and
tin mill sheet. The Company also manufactures a variety of fabricated
steel products including roll formed corrugated roofing, roof deck, form
deck, floor deck, culvert, bridge form and other products used primarily
by the construction, highway and agricultural markets.
NOTE 1 - SALES OF RECEIVABLES
Accounts receivable at March 31, 1999 and 1998 exclude $95.0
million and $84.5 million, respectively, representing uncollected accounts
receivable sold with recourse limited to the extent of uncollectible
balances. Fees paid by the Company under such agreement range from 5.3875%
to 6.125% of the outstanding amount of receivables sold. Based on the
Company's collection history, the Company believes that the credit risk
associated with the above arrangement is immaterial. The Company is
currently negotiating a replacement facility.
NOTE 2 - REVOLVING CREDIT FACILITY
On April 30, 1999, WPSC entered into a Third Amended and Restated
Revolving Credit Facility ("RCF") with Citibank, N.A. as agent. The RCF,
as amended, provides for borrowings for general corporate purposes up to
$150 million and a $25 million sub-limit for Letters of Credit. The RCF
agreement expires May 3, 2003. Interest rates are based on the Citibank
Prime Rate Plus 1.25% and/or a Eurodollar Rate plus 2.25%. The margin over
the prime rate and the Eurodollar Rate can fluctuate based upon
performance. Borrowings outstanding against the prior RCF at March 31,
1999 totaled $50.0 million. Letters of credit outstanding under the prior
RCF were $2.5 million at March 31, 1999.
<PAGE>
NOTE 3 - CONTINGENCIES
ENVIRONMENTAL MATTERS
The Company has been identified as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability
Act ("Superfund") or similar state statutes at several waste sites. The
Company is subject to joint and several liability imposed by Superfund on
potentially responsible parties. Due to the technical and regulatory
complexity of remedial activities and the difficulties attendant to
identifying potentially responsible parties and allocating or determining
liability among them, the Company is unable to reasonably estimate the
ultimate cost of compliance with Superfund laws. The Company believes,
based upon information currently available, that the Company's liability
for clean up and remediation costs in connection with the Buckeye
reclamation will be between $2.5 million and $3.0 million. At five other
sites (MIDC Glassport, Tex-Tin, Breslube Penn, Four County Landfill and
Beazer) the Company estimates costs to aggregate approximately $500,000.
The Company is currently funding its share of remediation costs.
The Company, as are other industrial manufacturers, is subject to
increasingly stringent standards relating to the protection of the
environment. In order to facilitate compliance with these environmental
standards, the Company has incurred capital expenditures for environmental
control projects aggregating $12.4 million, $9.5 million and $2.1 million
for 1997, 1998 and the first three months of 1999, respectively. The
Company anticipates spending approximately $21.7 million in the aggregate
on major environmental compliance projects through the year 2002,
estimated to be spent as follows: $5.5 million in 1999, $5.8 million in
2000, $6.0 million in 2001 and $4.4 million in 2002. Due to the
possibility of unanticipated factual or regulatory developments, the
amount of future expenditures may vary substantially from such estimates.
Non-current accrued environmental liabilities totaled $12.7 million
at December 31, 1998 and $12.5 million at March 31, 1999. These accruals
were initially determined by the Company in 1991 based on all then
available information. As new information becomes available, including
information provided by third parties, and changing laws and regulations,
the liabilities are reviewed and the accruals adjusted quarterly.
Management believes, based on its best estimate, that the Company has
adequately provided for remediation costs that might be incurred or
penalties that might be imposed under present environmental laws and
regulations.
Based upon information currently available, including the Company's
prior capital expenditures, anticipated capital expenditures, consent
agreements negotiated with Federal and state agencies and information
available to the Company on pending judicial and administrative
proceedings, the Company does not expect its environmental compliance and
liability costs, including the incurrence of additional fines and
penalties, if any, relating to the operation of its facilities, to have a
material adverse effect on the financial condition or results of
operations of the Company. However, as further information comes into the
Company's possession, it will continue to reassess such evaluations.
NOTE 4 - ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
In the first quarter of 1999, the Company adopted the American Institute
of Certified Public Accountants' Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
SOP 98-1 addresses costs incurred in connection with the implementation of
internal-use software, and specifies the circumstances under which such costs
should be capitalized or expended. The adoption of SOP 98-1 had no material
effect to the financial statements of the Company as of March 31, 1999.
<PAGE>
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
On October 27, 1998, the Company filed a complaint in Belmont County, Ohio
against ten trading companies, two Japanese mills and three Russian mills
alleging that it had been irreparably harmed as a result of sales of hot-rolled
steel by the defendants at prices below the cost of production. The Company
asked the Court for injunctive relief to prohibit such sales. On November 6,
1998, defendants removed the case from Belmont County to the US District Court
for the Southern District of Ohio. The Company subsequently amended its
complaint to allege violations of the 1916 Antidumping Act by nine trading
companies. The amended complaint seeks treble damages and injunctive relief. The
Court dismissed WPC's state law causes of action, but allowed it to proceed with
its claims under the 1916 Antidumping Act. The case has been set for trial on
August 16, 1999. The Company has reached out-of-court settlements with four of
the nine steel trading companies named in this lawsuit.
WHX, the parent company of WPC, continues to pursue strategic alternatives
to maximize the value of its portfolio of businesses. Some of these alternatives
have included, and will continue to include selective acquisitions, divestitures
and sales of certain assets. The Company has provided, and may from time to time
in the future, provide information to interested parties regarding portions of
its businesses for such purposes.
RESULTS OF OPERATIONS
Net sales for the first quarter of 1999 totaled $250.0 million on
shipments of steel products totaling 598,666 tons. Net sales for the first
quarter of 1998 totaled $259.1 million on shipments of 530,393 tons. Average
sales prices decreased from $489 per ton shipped to $418 per ton shipped
primarily due to a decrease of 7.7% in steel prices, reflecting severe pressure
on prices due to the significant increase in low-priced steel imports and a
shift to a lower valued mix of products shipped.
First quarter 1999 operating costs increased to $274.9 million from $263.8
million. Operating cost per ton decreased to $459 per ton in the 1999 first
quarter from $497 per ton in the 1998 first quarter. The increase in operating
costs primarily reflects the effects of higher volumes of shipments in the 1999
first quarter compared to the 1998 first quarter. The decrease in operating cost
per ton reflects the effect of higher volumes on fixed cost absorption. The
Company produced 622,972 tons of raw steel in the 1999 first quarter, as
compared to 623,714 tons in the 1998 first quarter.
Depreciation expense increased $0.7 million to $20.2 million in the first
quarter of 1999 from $19.5 million in the comparable period in 1998 due to the
acquisition of assets during 1998.
Selling, administrative and general expense for the first quarter of 1999
increased $1.7 million to $16.1 million from $14.3 million in the comparable
period in 1998 due primarily to an increased marketing effort in the first
quarter.
Interest expense for the first quarter 1999 decreased $0.2 million to $9.2
million from the comparable period in 1998 due to lower levels of short-term
borrowings.
Other income increased $0.2 million to $0.5 million in the first quarter
of 1999, compared to $0.3 million in the 1998 first quarter. The increase in
other income reflects increased equity income from joint venture operations,
partially offset by a decrease resulting from lower interest income earned.
The 1999 and 1998 first quarter tax benefits reflect estimated annual
effective tax rates of 39.5% and 35%, respectively.
<PAGE>
Net loss for the 1999 first quarter totaled $20.3 million compared to the
1998 first quarter net loss which totaled $9.0 million.
FINANCIAL POSITION
Net cash flow provided by operating activities for the first three months
of 1999 totaled $11.0 million. Working capital accounts (excluding cash,
short-term borrowings and current maturities of long term debt) provided $27.1
million of funds. Accounts receivable increased by $21.7 million, trade payables
increased $23.5 million, other current assets decreased $0.3 million, and other
current liabilities increased $14.8 million. Inventories, valued principally by
the LIFO method for financial reporting purposes, totaled $249.2 million at
March 31, 1999, a decrease of $10.2 million from December 31, 1998. The increase
in accounts receivable is due to increased shipments in the first quarter of
1999 as compared to the fourth quarter of 1998.
In the first three months of 1999, $14.8 million was spent on capital
improvements including $2.1 million on environmental control projects.
Continuous and substantial capital and maintenance expenditures will be required
to maintain and where necessary, upgrade operating facilities to remain
competitive, and to comply with environmental control requirements. It is
anticipated that necessary capital expenditures including required environmental
expenditures in future years will approximate depreciation expense and represent
a material use of operating funds.
On April 30, 1999, WPSC entered into a Third Amended and Restated
Revolving Credit Facility ("RCF") with Citibank, N.A. as agent. The RCF, as
amended, provides for borrowings for general corporate purposes up to $150
million and a $25 million sub-limit for Letters of Credit. The RCF agreement
expires May 3, 2003. Interest rates are based on the Citibank Prime Rate Plus
1.25% and/or a Eurodollar Rate Plus 2.25%. The margin over the prime rate and
the Eurodollar Rate can fluctuate based upon performance. Borrowings outstanding
against the prior RCF at March 31, 1999 totaled $50.0 million. Letters of credit
outstanding under the prior RCF were $2.5 million at March 31, 1999.
Effective May 31, 1998, WHX merged WPC's defined benefit pension plan with
those of its wholly owned Handy & Harman ("H&H") subsidiary. The pension
obligations will be accounted for by the parent company as a multi-employer
plan. The merger will eliminate WPC cash funding obligations estimated in excess
of $135.0 million over the next four years. WPC pension expense will be
allocated and charged quarterly, and will offset the net prepaid pension asset
recorded by the common parent.
LIQUIDITY
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. The Company satisfies its working
capital requirements through cash on hand, investments, the Receivables
Facility, borrowing availability under the Revolving Credit Facility and funds
generated from operations. The Company believes that such sources will provide
the 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 could
materially affect the Company's results of operations. During the 1999 first
quarter, the Company had minimal activity with respect to futures contracts, and
the impact of such activity was not material to the Company's financial
condition or results of operations.
YEAR 2000 PROJECT
WPC's company wide Year 2000 Project is proceeding on schedule. The
project addresses all aspects of computing at WPSC including mainframe systems,
external data interfaces to customers, suppliers, banks and government,
mainframe controlling software, voice and data systems, internal
<PAGE>
networks and personal computers, plant process control systems, building
controls, and in addition surveying WPC's major suppliers and customers to
assure their readiness.
Mainframe business systems are 100% Year 2000 compliant; external data
interfaces, mainframe software, voice and data systems and internal networks and
personal computers are anticipated to be Year 2000 compliant by June 30, 1999;
85% of the process control systems are currently Year 2000 compliant. Process
control systems will be 95% compliant by June 30, 1999 and 100% compliant in the
third quarter of 1999. Building controls are Year 2000 compliant at this time.
Supplier and customer surveys are 100% complete.
The total costs associated with the required modifications to become Year
2000 compliant is not expected to be material to the Company's financial
condition or results of operations. The estimated total cost of the Year 2000
Project is $2.3 million. The total amount expended on the project through March
31, 1999 is $1.9 million. Funds are being provided to the project through
departmental expenses budgeted for at the beginning of this project.
Failure to correct a Year 2000 problem could result in an interruption of
certain normal business activities or operations. The Year 2000 project is
expected to eliminate any issues that would cause such an interruption. WPSC
believes that the implementation of the Year 2000 project changes will minimize
any interruptions. WPSC is currently in the process of developing contingency
plans regarding component failure of any Year 2000 non-compliant segment of the
business.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). This pronouncement requires all derivative
instruments to be reported at fair value on the balance sheet; depending on the
nature of the derivative instrument, changes in fair value will be recognized
either in net income or as an element of comprehensive income. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. The Company has not
engaged in significant activity with respect to derivative instruments or
hedging activities in the past. Management of the Company has not yet determined
the impact, if any, of the adoption of SFAS 133 on the Company's financial
position or results of operations.
******
When used in the Management's Discussion and Analysis, the words
"anticipate", "estimate" and similar expressions are intended to identify
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, which are intended to be covered by the
safe harbors created thereby. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including without limitation, the
ability of the Company to develop market and sell its products, the effects of
competition and pricing, and Company and industry shipment levels. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward-looking statements included herein will
prove to be accurate.
<PAGE>
PART II OTHER INFORMATION
Item 6.(a) EXHIBITS
27 Financial Data Schedule
6.(b) REPORT ON FORM 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHEELING-PITTSBURGH CORPORATION
/s/ PAUL J. MOONEY
------------------------------------
P. J. Mooney
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
May 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Wheeling-Pittsburgh Corporation Consolidated Financial Statements as of March
31, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 61,176
<ALLOWANCES> 1,271
<INVENTORY> 249,188
<CURRENT-ASSETS> 316,201
<PP&E> 1,101,040
<DEPRECIATION> 457,800
<TOTAL-ASSETS> 1,255,496
<CURRENT-LIABILITIES> 289,192
<BONDS> 349,745
<COMMON> 0
0
0
<OTHER-SE> 151,015
<TOTAL-LIABILITY-AND-EQUITY> 1,255,496
<SALES> 250,048
<TOTAL-REVENUES> 250,048
<CGS> 238,585
<TOTAL-COSTS> 274,852
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,176
<INCOME-PRETAX> (33,499)
<INCOME-TAX> (13,232)
<INCOME-CONTINUING> (20,267)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,267)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
