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 June 30, 2000
/ / 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 JUNE 30, 2000 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
August 1, 2000.
<PAGE>
WHEELING-PITTSBURGH CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Net Sales $ 293,745 $ 255,799 $ 573,339 $ 505,847
Operating Costs
Cost of goods sold 252,940 218,189 493,489 456,774
Depreciation 21,535 19,145 41,609 39,360
Selling, administrative and general expense 17,468 16,584 35,592 32,636
--------- --------- --------- ---------
291,943 253,918 570,690 528,770
--------- --------- --------- ---------
Operating Income (Loss) 1,802 1,881 2,649 (22,923)
Interest expense on debt 9,457 9,231 19,268 18,407
Other income (expense) (344) 222 (691) 703
--------- --------- --------- ---------
Loss Before Taxes (7,999) (7,128) (17,310) (40,627)
Tax provision (benefit) (41,948) (1,678) (46,129) (14,910)
--------- --------- --------- ---------
Net Income (Loss) $ 33,949 $ (5,450) $ 28,819 $ (25,717)
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
WHEELING-PITTSBURGH CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
JUNE 30, DECEMBER 31,
2000 1999
---- ----
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ -- $ --
Trade receivables - net 52,156 57,688
Inventories:
Finished and semi-finished products 179,983 158,190
Raw materials 59,260 61,483
Other materials and supplies 23,135 28,033
Excess of LIFO over current cost 4,489 4,489
----------- -----------
266,867 252,195
Prepaid expenses and deferred charges 5,622 4,425
----------- -----------
Total current assets 324,645 314,308
Investments in associated companies 62,182 64,229
Property, plant and equipment at cost, less
accumulated depreciation 658,750 653,234
Deferred income taxes 167,348 162,344
Due from affiliates 52,729 56,203
Deferred charges and other assets 26,129 27,704
----------- -----------
$ 1,291,783 $ 1,278,022
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables $ 141,140 $ 127,448
Short-term debt 92,851 79,900
Deferred income taxes - current 27,406 27,406
Other current liabilities 89,666 90,309
Long-term debt due in one year 545 415
----------- -----------
Total current liabilities 351,608 325,478
Long-term debt 357,048 353,978
Other employee benefit liabilities 386,949 392,143
Other liabilities 30,562 69,626
----------- -----------
1,126,167 1,141,225
----------- -----------
Stockholders' Equity:
Common Stock - $.01 par value - 100
shares issued and outstanding -- --
Additional paid-in capital 335,138 335,138
Accumulated earnings (deficit) (169,522) (198,341)
----------- -----------
Total stockholders' equity 165,616 136,797
----------- -----------
$ 1,291,783 $ 1,278,022
=========== ===========
See notes to consolidated financial statements.
<PAGE>
WHEELING-PITTSBURGH CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
2000 1999
---- ----
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 28,819 $(25,717)
Items not affecting cash from
operating activities:
Depreciation 41,609 39,360
Other postretirement benefits (4,040) (1,369)
Income taxes (46,156) (9,506)
Equity income in affiliated companies (1,834) (2,472)
Pension expense 1,305 3,036
(Gain)/loss on disposition of assets (1,648) 2,573
Decrease (increase) in working capital elements:
Trade receivables (8,618) (11,006)
Trade receivables sold 14,150 3,225
Inventories (14,672) (27,136)
Other current assets (1,197) (11,034)
Trade payables 13,692 32,515
Other current liabilities (643) (1,175)
Other items - net 1,170 (19,529)
-------- --------
Net cash provided by (used in) operating activities 21,937 (28,235)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Plant additions and improvements (48,377) (34,072)
Investment in affiliates 131 2,181
Dividends from affiliated companies 3,750 5,000
Proceeds from sale of property 2,934 640
-------- --------
Net cash used in
investing activities (41,562) (26,251)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long term borrowings 3,200 4,612
Short term borrowings 12,951 27,616
Receivables from affiliates 3,474 7,298
Letter of credit collateralization -- 8,229
-------- --------
Net cash provided by financing activities 19,625 47,755
-------- --------
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 June 30, 2000, the
consolidated statement of operations for the three and six month periods
ended June 30, 2000 and 1999 and the consolidated statement of cash flows
for the six month periods ended June 30, 2000 and 1999 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 June 30, 2000 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. This quarterly
report on Form 10-Q should be read in conjunction with the Company's
audited consolidated financial statements for the year ended December 31,
1999. The results of operations for the period ended June 30, 2000 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
On May 27, 1999, the Company renegotiated its $100 million
Receivables Facility agreement on terms and conditions similar to its
previous facility. On June 30, 2000, the Company amended the agreement to
increase the program limit from $100 million to $115 million. The
agreement expires in May 2003. Accounts receivable at June 30, 2000 and
December 31, 1999 exclude $114.2 million and $100 million, respectively,
representing uncollected accounts receivable sold with recourse limited to
the extent of uncollectible balances. Fees paid by the Company under such
Receivables Facility range from approximately 5.91% to 6.33% 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.
NOTE 2 - REVOLVING CREDIT FACILITY
On April 30, 1999, Wheeling-Pittsburgh Steel Corporation ("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 expires May 3, 2003.
Interest rates are based on
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the Citibank prime rate plus 1.375% and/or a Eurodollar rate plus 2.375%.
The margin over the prime rate and the Eurodollar rate can fluctuate based
upon performance. Borrowings outstanding against the RCF at June 30, 2000
totaled $86.5 million. Letters of credit outstanding under the RCF were
$2.0 million at June 30, 2000.
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") and/or similar state statutes at several waste sites.
The Company is subject to joint and several liability imposed by Superfund
on potentially responsible parties. Due to the technical and regulatory
complexity of remedial activities and the difficulties attendant to
identifying potentially responsible parties and allocating or determining
liability among them, the Company is unable to reasonably estimate the
ultimate cost of compliance with Superfund laws. The Company believes,
based upon information currently available, that the Company's liability
for clean up and remediation costs in connection with the Buckeye
Reclamation Landfill will be between $1.5 million and $2.0 million. At
five other sites (MIDC Glassport, Tex-Tin, Breslube Penn, Four County
Landfill and Beazer) the Company estimates costs to aggregate
approximately $500,000. The Company is currently funding its share of
remediation costs.
The Company, as are other industrial manufacturers, is subject to
increasingly stringent standards relating to the protection of the
environment. In order to facilitate compliance with these environmental
standards, the Company has incurred capital expenditures for environmental
control projects aggregating $9.5 million, $7.7 million and $1.3 million
for 1998, 1999 and the first half of 2000, respectively. The Company
anticipates spending approximately $29.2 million in the aggregate on major
environmental compliance projects through the year 2003, estimated to be
spent as follows: $5.8 million in 2000, $8.2 million in 2001, $6.2 million
in 2002, and $9.0 million in 2003. Due to the possibility of unanticipated
factual or regulatory developments, the amount of future expenditures may
vary substantially from such estimates.
Non-current accrued environmental liabilities totaled $14.7 million
at December 31, 1999 and June 30, 2000. These accruals are determined by
the Company based on all known 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 are 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 operations 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.
<PAGE>
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PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
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 second quarter of 2000 totaled $293.7 million on
shipments of steel products totaling 615,114 tons. Net sales for the second
quarter of 1999 totaled $255.8 million on shipments of 567,849 tons. The
increase in net sales is due to an increase of 8.3% in volume of tons of steel
products shipped, an increase of 3.6% in steel prices, reflecting partial
recovery from the import- impacted prices of the second quarter of 1999, a
higher value-added mix of products shipped and increased sales of coke. The
increase in tons shipped is primarily due to the absence of low-priced dumped
imports in the market in the second quarter of 2000 as compared to the
comparable period in the prior year.
Second quarter 2000 operating costs increased to $291.9 million from
$253.9 million in the 1999 second quarter. Operating cost per ton increased to
$475 per ton in the 2000 second quarter from $447 per ton in the 1999 second
quarter. The Company's second quarter 1999 operating costs include a
non-recurring credit of $9.0 million from a settlement with certain insurance
carriers that releases and terminates all rights, obligations, and liabilities
of the insurance companies with respect to the subject insurance policies.
Operating costs in the second quarter 1999, absent the non-recurring credit,
total $463 per ton. The increase in operating cost per ton reflects higher raw
material and energy costs and the cost of making increased volumes of coke sold
in the open market during the second quarter of 2000, partially offset by the
effect of higher production levels on fixed cost absorption. The Company
produced 670,603 tons of raw steel in the 2000 second quarter and 584,995 tons
in the 1999 second quarter.
Depreciation expense increased $2.4 million to $21.5 million in the second
quarter of 2000 from $19.1 million in the comparable period in 1999 due to
higher levels of capital expenditures and raw steel production in the second
quarter of 2000 and its effect on the modified units of production depreciation
method.
Selling, administrative and general expense for the second quarter of 2000
increased $0.9 million to $17.5 million from $16.6 million in the comparable
period in 1999 due to an increased marketing effort and expansion of the
fabricated products business.
Interest expense for the second quarter of 2000 increased $0.2 million to
$9.5 million from the comparable period in 1999 due to increased borrowings and
higher rates under the Revolving Credit Facility (RCF), partially offset by
higher amounts of capitalized interest during the second quarter of 2000.
Other income (expense) decreased $0.6 million to $0.3 million expense in
the second quarter of 2000, compared to $0.2 million income in the 1999 second
quarter. The decrease in other income reflects lower equity income from joint
venture operations, increased securitization fees and lower royalty income
earned.
<PAGE>
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The 2000 second quarter tax benefit reflects an estimated annual effective
tax rate of 44.9%, and includes a non-cash benefit of $38.1 million for the
settlement of prior years' federal taxes. The 1999 second quarter tax benefit
reflects an estimated annual effective tax rate of 36.7%. The increase in the
2000 effective tax rate during the second quarter reflects changes in estimated
annual pretax income and in permanent tax differences.
Net income for the 2000 second quarter totaled $33.9 million compared to
1999 second quarter net loss which totaled $5.5 million. Net income was
favorably impacted by the aforementioned income tax benefit of $38.1 million.
Net sales for the first six months of 2000 totaled $573.3 million on
shipments of steel products totaling 1,219,590 tons. Net sales for the first six
months of 1999 totaled $505.8 million on shipments of steel products totaling
1,166,515 tons. Average sales prices increased from $434 per ton shipped to $470
per ton shipped due to a 3.8% increase in steel prices, reflecting partial
recovery from the import-impacted prices of 1999, as well as a higher
value-added mix of products sold, and increased sales of coke during the six
months of 2000 as compared to the six month period of 1999. The increase in tons
shipped is due to the absence of low-priced dumped imports in the market in the
first half of 2000 as compared to the comparable period in the prior year.
Operating costs for the first six months of 2000 increased to $570.7
million or $468 per ton from $528.8 million or $453 per ton in the 1999 first
six months. The Company's 2000 operating costs include a non-recurring credit of
$7.4 million from insurance recoveries resulting from a temper mill fire. The
increase in operating costs is due to the higher raw material and energy costs
and the cost of making increased volumes of coke sold in the open market as
compared to the same period of 1999. Included in the 1999 six month operating
costs is $9.0 million of income reflecting a favorable settlement with certain
insurance carriers that releases and terminates all rights, obligations and
liabilities of the insurance companies with respect to the subject insurance
policies. In the first six months of 2000, the Company produced 1,260,138 tons
of raw steel as compared to production of 1,207,967 tons of raw steel in the
1999 first six months.
Depreciation expense increased $2.2 million to $41.6 million in the first
six months of 2000 from $39.4 million in the comparable period in 1999 due to
1999 additions and higher levels of raw steel production in 2000 and its effect
on the modified units of production depreciation method.
Selling, administrative and general expense for the first six months of
2000 increased $3.0 million to $35.6 million from $32.6 million in the
comparable period in 1999 due primarily to an increased marketing effort in 2000
and expansion of the fabricated products business during 2000.
Interest expense for the first six months of 2000 increased $0.9 million
to $19.3 million from the comparable period in 1999 due to increased borrowings
and higher rates under the RCF and increased long term debt, partially offset by
increased capitalized interest.
Other income decreased $1.4 million to $0.7 million expense in the first
six months of 2000, compared to $0.7 million income in the 1999 first six
months. The decrease in other income reflects lower equity income from joint
venture operations, lower royalty income earned and increased securitization
fees.
The 2000 six month tax benefit reflects an estimated annual effective tax
rate of 44.9% and includes a non-cash benefit of $38.1 million from the
settlement of prior years' federal taxes. The 1999 six month tax benefit
reflects an estimated annual effective tax rate of 36.7%. The increase in the
2000 effective tax rate reflects changes in estimated annual pretax income and
in the amount of permanent tax differences.
Net income for the first six months of 2000 totaled $28.8 million compared
to the 1999 first six months net loss which totaled $25.7 million. Net income
was favorably impacted by the aforementioned income tax benefit of $38.1
million.
<PAGE>
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FINANCIAL POSITION
Net cash flow provided by operating activities for the first six months of
2000 totaled $21.9 million. Working capital accounts (excluding cash, short-term
borrowings and current maturities of long term debt) provided $2.7 million of
funds. Accounts receivable increased by $8.6 million, excluding a $14.2 million
sale of trade receivables under the Receivables Facility. Inventories, valued
principally by the LIFO method for financial reporting purposes, totaled $266.9
million at June 30, 2000, an increase of $14.7 million from December 31, 1999.
Trade payables increased by $13.7 million, primarily as a result of increased
inventories.
In the first six months of 2000, $48.4 million was spent on capital
improvements including $1.3 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 expires May
3, 2003. Interest rates are based on the Citibank Prime Rate plus 1.375% and/or
a Eurodollar rate plus 2.375%. The margin over the prime rate and the Eurodollar
rate can fluctuate based upon performance. Borrowings outstanding against the
RCF at June 30, 2000 totaled $86.5 million and letters of credit outstanding
under the RCF totaled $2.0 million. The Company anticipates that if steel prices
and demand remain weak or deteriorate further, it will need to renegotiate
certain covenants in its RCF. There can be no assurance that such covenants can
be renegotiated.
On May 27, 1999, the Company renegotiated its $100 million Receivables
Facility agreement on terms and conditions similar to its previous facility. On
June 30, 2000, the Company amended the agreement to increase the program limit
from $100 million to $115 million. The agreement expires in May 2003. Accounts
receivable at June 30, 2000 and December 31, 1999 exclude $114.2 million and
$100 million, respectively, representing uncollected accounts receivable sold
with recourse limited to the extent of uncollectible balances. Fees paid by the
Company under such Receivables Facility range from approximately 5.91% to 6.33%
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.
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 are accounted for by the parent company as a multi-employer plan.
The merger eliminated WPC cash funding obligations estimated in excess of $135
million. 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 the Receivables Facility, borrowing availability
under the RCF and funds generated from operations. As a result of continued
weakness in steel prices and demand, the Company anticipates that such sources
will be required to provide the Company with the funds necessary to satisfy its
working capital and capital expenditure requirements, however, there can be no
assurance that alternative sources may not be required, including advances from
its parent, WHX. External factors, such as worldwide steel production and demand
and currency exchange rates could also materially affect the Company's results
of operations and financial condition. During the first half of 2000 the Company
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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.
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" (SFAS133). This pronouncement, as amended by SFAS 137
and 138, requires all derivative instruments to be reported at fair value on the
balance sheet; depending on the nature of the derivative instrument, changes in
fair value will be recognized either in net income or as an element of other
comprehensive income. SFAS 133 is effective for fiscal years beginning after
June 15, 2000. The Company has not engaged in significant activity with respect
to derivative instruments or hedging activities in the past. Management of the
Company has not yet determined the impact, if any, of the adoption of SFAS 133
on the Company's financial position or results of operations.
******
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 markets and sell its products, the effects of
competition and pricing, 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>
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PART II OTHER INFORMATION
Item 6.(a) Exhibits
27 Financial Data Schedule
6.(b) Report on Form 8-K
None
<PAGE>
-8-
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/ P. J. Mooney
--------------------------------------
P. J. Mooney
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
AUGUST 14, 2000
