-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JuFnKimEs00E6SrKNL6eroQZCChMwdH7OqbTcjGRok2Qw8+7xwEk/P44/yUJCgM6 3Cr9vDvp8Z7iKwaxrant1w== 0000921895-97-000154.txt : 19970312 0000921895-97-000154.hdr.sgml : 19970312 ACCESSION NUMBER: 0000921895-97-000154 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970311 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WHX CORP CENTRAL INDEX KEY: 0000106618 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 133768097 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-02394 FILM NUMBER: 97554207 BUSINESS ADDRESS: STREET 1: 110 EAST 59TH ST CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2123555200 MAIL ADDRESS: STREET 1: 1134 MARKET STREET CITY: WHEELING STATE: WV ZIP: 26003 FORMER COMPANY: FORMER CONFORMED NAME: WHEELING PITTSBURGH CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WHEELING PITTSBURGH STEEL CORP DATE OF NAME CHANGE: 19910130 FORMER COMPANY: FORMER CONFORMED NAME: WHEELING STEEL CORP DATE OF NAME CHANGE: 19690202 10-K 1 FORM 10-K 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. 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 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 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.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1992 1993 1994 1995 1996(1) ---- ---- ---- ---- ---- (Tons in millions) 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
- ------------------ (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 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.
HISTORICAL PRODUCT MIX --------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 --------------------------------------------------------------------------------- 1992 1993 1994 1995 1996(1) ---- ---- ---- ---- ------- 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%
(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 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 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
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- (TONS IN THOUSANDS) 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 ====== ===== ===== ===== =====
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 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 7 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.
PERCENT OF TOTAL NET TONS SHIPPED YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------- Major Customer Category: 1992 1993 1994 1995 1996(1) - ------------------------ ---- ---- ---- ---- ---- 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% === === === === ===
- ------------------ (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 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 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 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 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. 12 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 13 (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 14 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. 15 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. 16
ITEM 6 SELECTED FINANCIAL DATA - ------------------------------------------------------------------------------------------------------------------------------ FIVE-YEAR STATISTICAL (THOUSANDS OF DOLLARS) - ------------------------------------------------------------------------------------------------------------------------------ 1992 1993 1994 1995 1996 - ------------------------------------------------------------------------------------------------------------------------------ PROFIT AND LOSS: 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 - ------------------------------------------------------------------------------------------------------------------------------
WHX CORPORATION 17 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. 18 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 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 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 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 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 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
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - -------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS EXCEPT PER SHARE) - -------------------------------------------------------------------------------------------------------------------------------- Year ended December 31 1994 1995 1996 - -------------------------------------------------------------------------------------------------------------------------------- REVENUES: 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) - --------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHX CORPORATION 25
- ---------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------- DECEMBER 31, 1995 1996 - ------------------------------------------------------------------------------------------------- ASSETS 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 - --------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHX CORPORATION 26
- -------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) - -------------------------------------------------------------------------------------------------------------- Year Ended December 31 1994* 1995* 1996 - -------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: 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 - -------------------------------------------------------------------------------------------------------------
*RECLASSIFIED FOR COMPARABILITY. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHX CORPORATION 27 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 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 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 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 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 NOTE D -- INCOME TAXES
YEAR ENDED DECEMBER 31, ----------------------------------------- 1994 1995 1996 ---- ---- ---- (Dollars in Thousands) INCOME TAXES BEFORE EXTRAORDINARY ITEMS 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) (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) ======== ======= ========
33 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
1995 1996 ---- ---- (Dollars in Thousands) ASSETS 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 ======= =======
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 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:
1994 1995 1996 ---- ---- ---- (Dollars in thousands) 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) ======= ======= ========
NOTE E--SHORT TERM INVESTMENTS The composition of the Company's short term investments are as follows: 1995 1996 ---- ---- Trading Securities: (Dollars in thousands) 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 ======== ========
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 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 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 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 INTEREST COST Aggregate interest costs on long-term debt and amounts capitalized during the three years ended December 31, 1996, are as follows:
1994 1995 1996 ---- ---- ---- (Dollars in Thousands) 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 ======= ======= =======
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 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 Changes in capital accounts are as follows: (Dollars and shares in thousands)
Capital in Accumulated Excess of Convertible Treasury Earnings Par Common Stock Preferred Stock (Deficit) Value Shares Amount Shares Amount Shares Amount --------- --------- ------ ------ ------ ------ ------ ------ 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 ====== ====== ====== ====== ===== ======= ======= ========
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 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:
Number of Options ----------------- 1991 D & O WPN OPTION PRICE WEIGHTED AVERAGE Plan Plan Grants Or Range Option Price ---- ---- ------ -------- ------------ 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 --------- -------- ---------
Options outstanding at December 31, 1996 which are exercisable totaled 2,101,294 and have a weighted average option price of $10.75. 42 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 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 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 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.
Year Ended December 31, --------------------------------------------- 1994 1995 1996 ---- ---- ---- INCOME DATA (DOLLARS IN THOUSANDS) 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 ========== ========== ==========
46 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 NOTE P -- QUARTERLY INFORMATION (UNAUDITED) Financial results by quarter for the two fiscal years ended December 31, 1995 and 1996 are as follows:
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 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)
48 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 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 Wheeling-Nisshin, Inc. Balance Sheets December 31, 1995 and 1996 (Dollars in thousands)
ASSETS 1995 1996 ---- ---- Current assets: 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 ======== ========
The accompanying notes are an integral part of the financial statements. 51 Wheeling-Nisshin, Inc. Statement of Income for the years ended December 31, 1994, 1995 and 1996 (Dollars in thousands)
1994 1995 1996 ---- ---- ---- 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 ========= ========= ========
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 Wheeling-Nisshin, Inc. Statement of Cash Flows for the years ended December 31, 1994, 1995 and 1996 (Dollars in thousands)
1994 1995 1996 ---- ---- ---- 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 -- =========== ========= =====
The accompanying notes are an integral part of the financial statements. 53 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 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 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 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 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 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 (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 *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 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 EX-10.9 2 AMENDMENT NO. 3 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. 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- EX-10.13 3 AMENDMENT NO. 1 TO SECOND AMENDED CREDIT AGREEMENT 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. 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: 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", 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. 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 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 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 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 EX-10.14 4 EMPLOYMENT AGREEMENT 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 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- 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: -3- (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- 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- 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 -6- 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 -7- 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 -8- 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- 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 -10- 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 -11- 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 -12- 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 -13- 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 -14- 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 -15- 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") -16- 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 -17- 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 -18- 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 -19- 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: -20- (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 -21- 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. -22- 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 EX-21.1 5 SUBSIDIARIES 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 EX-23.1 6 CONSENT OF INDEPENDENT ACCOUNTANTS 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 EX-23.2 7 CONSENT OF INDEPENDENT ACCOUNTANTS 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 EX-27 8 FINANCIAL DATA SCHEDULE
5 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. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 35,020 447,562 25,805 1,149 215,402 737,731 1,098,456 343,044 1,718,779 245,775 268,198 245 0 614 658,123 1,718,779 1,232,695 1,232,695 1,096,228 1,236,155 0 0 25,963 (3,449) (4,107) 658 0 0 0 658 (.82) (.82)
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