<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997.
---------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 333-18019
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WCI STEEL, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-1585405
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1040 Pine Ave., S.E., Warren, Ohio 44483-6528
(Address of principal executive offices) (Zip Code)
(330) 841-8314
(Registrant's telephone number, including area code)
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.
[X] Yes [ ] No
As of July 31, 1997, the registrant had 100 shares of its common
stock, no par value, $.01 stated value, outstanding.
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<PAGE> 2
WCI STEEL, INC. AND SUBSIDIARIES
INDEX
--------------------------------
Page No.
--------
PART I FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 1997 and October 31, 1996. 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended July 31, 1997 and 1996. 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended July 31, 1997 and 1996. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WCI STEEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
July 31, October 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.........................$ 14,977 $ 90,395
Short-term investments............................ - 49,146
Accounts receivable, less allowances.............. 60,805 65,869
Inventories....................................... 101,839 96,675
Deferred income taxes............................. 10,188 10,637
Prepaid expenses.................................. 601 1,244
-------- --------
Total current assets......................... 188,410 313,966
Property, plant and equipment, net.................. 223,911 205,121
Intangible pension asset............................ 24,687 27,505
Other assets, net................................... 21,281 20,861
-------- --------
Total assets............................$ 458,289 $ 567,453
======== ========
LIABILITIES and SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt.................$ 1,592 $ 2,448
Accounts payable.................................. 63,078 79,138
Accrued liabilities............................... 44,810 40,697
Income taxes...................................... 2,018 10,049
-------- --------
Total current liabilities.................... 111,498 132,332
Long-term debt, excluding current portion........... 301,643 209,058
Deferred income taxes............................... 3,473 4,365
Postretirement health benefits...................... 84,929 81,795
Pension benefits.................................... 35,450 34,011
Other liabilities................................... 17,987 26,012
-------- --------
Total liabilities....................... 554,980 487,573
-------- --------
Shareholders' equity (deficit)
Preferred stock, par value $1,000 per share, 5,000
shares authorized, none issued. ................ - -
Common Stock, no par value, stated value $.01 per
share, 40,000,000 shares authorized, 100 and
36,623,700 shares issued at July 31, 1997
and October 31, 1996, respectively.............. - 366
Treasury stock at cost, 222,300 shares at
October 31, 1996................................ - (1,200)
Additional paid-in capital........................ - 570
Retained earnings (deficit)....................... (96,691) 80,144
<PAGE> 4
-------- --------
Total shareholders' equity (deficit).... (96,691) 79,880
Commitments and contingencies....................... - -
Total liabilities and -------- --------
shareholders' equity (deficit)........$ 458,289 $ 567,453
======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
WCI STEEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Three months Nine months
ended July 31, ended July 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales........................ $ 165,917 $ 174,695 $ 499,458 $ 490,147
Operating costs and expenses
Cost of products sold........... 134,358 145,265 407,258 411,467
Depreciation and amortization... 5,653 5,650 16,779 16,960
Selling, general and
administrative expenses........ 5,006 5,740 24,309 15,939
------- ------- ------- -------
145,017 156,655 448,346 444,366
------- ------- ------- -------
Operating income................. 20,900 18,040 51,112 45,781
------- ------- ------- -------
Other income (expense)
Interest expense................ (8,055) (6,232) (23,648) (18,742)
Interest and other income, net.. 301 1,742 1,089 4,813
------- ------- ------- -------
(7,754) (4,490) (22,559) (13,929)
------- ------- ------- -------
Income before extraordinary loss
and income taxes................ 13,146 13,550 28,553 31,852
Income tax expense............... (4,996) (5,420) (10,913) (12,740)
------- ------- ------- -------
Income before extraordinary
loss............................ 8,150 8,130 17,640 19,112
Extraordinary loss on early
retirement of debt, net
of income tax................... - - (19,606) -
------- ------- ------- -------
Net income (loss)................ $ 8,150 $ 8,130 $ (1,966)$ 19,112
======= ======= ======= =======
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</FN>
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
WCI STEEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited) Nine months
ended July 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net (loss) income.................................$ (1,966) $ 19,112
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization................ 14,581 14,763
Amortization of deferred blast furnace
maintenance costs.......................... 2,198 2,197
Amortization of financing costs.............. 1,093 1,637
Postretirement health benefits............... 3,134 4,091
Pension benefits............................. 4,257 5,075
Deferred income taxes........................ (443) (413)
Extraordinary loss on early retirement of
debt....................................... 32,786 -
Other........................................ 323 (636)
Cash provided (used) by changes in certain assets
and liabilities
Accounts receivable........................ 5,064 (31,478)
Inventories................................ (5,164) 20,045
Prepaid expenses and other assets.......... 1,008 1,372
Accounts payable........................... (16,060) 24,900
Accrued liabilities........................ 4,113 9,012
Income taxes payable and recoverable, net.. (8,031) 7,094
Other liabilities.......................... (8,025) 547
------ -------
Net cash provided by operating
activities.............................. 28,868 77,318
------ -------
Cash flows from investing activities
Additions to property, plant and equipment, net... (33,498) (20,406)
Short-term investments, net....................... 49,146 (5,770)
Gross proceeds from the sale of assets............ 135 497
------ -------
Net cash (used) provided by investing
activities.............................. 15,783 (25,679)
------ -------
Cash flows from financing activities
Net proceeds from issuance of Senior Secured
Notes........................................... 290,103 -
Repurchase of Senior Notes........................(233,085) -
Repurchase of Common Stock........................ (56,936) -
Dividends paid....................................(118,000) (4,019)
Principal payments on other long-term debt........ (2,151) (2,053)
Purchases of treasury stock...................... - (1,200)
-------- -------
Net cash used by financing activities.....(120,069) (7,272)
-------- -------
<PAGE> 6
Net (decrease) increase in cash and cash equivalents... (75,418) 44,367
Cash and cash equivalents at beginning of period....... 90,395 94,266
------- -------
Cash and cash equivalents at end of period.............$ 14,977 $138,633
======= =======
Supplemental disclosure of cash flow information
Cash paid for interest............................$ 21,216 $ 11,811
Cash paid for income taxes........................ 6,207 6,071
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</FN>
</TABLE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
( Unaudited )
Three and nine months ended July 31, 1997 and 1996
NOTE 1 : BASIS OF PRESENTATION
WCI Steel, Inc. (Company or WCI) is a wholly-owned subsidiary of The Renco
Group, Inc. (Renco or Parent). The financial information included herein is
unaudited; however, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim
periods. The results of operations for the three and nine months ended July
31, 1997 are not necessarily indicative of the results to be expected for the
full year.
These interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Form 10-K for the fiscal year ended October 31, 1996.
NOTE 2 : INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the last-in, first-out (LIFO) method. The composition of inventories at July
31, 1997 and October 31, 1996 was as follows:
<TABLE>
<CAPTION>
July 31, October 31,
1997 1996
----------- -----------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Raw materials.........................$ 31,436 $ 40,828
Finished and semi-finished product.... 77,961 62,340
Supplies.............................. 528 393
-------- --------
109,925 103,561
Less LIFO reserve..................... 8,086 6,886
-------- --------
$ 101,839 $ 96,675
======== ========
</TABLE>
<PAGE> 7
NOTE 3 : LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1997 1996
---------- ----------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Senior Secured Notes with interest at 10%
payable semi-annually, due 2004...............$ 300,000 $ -
Senior Notes with interest at 10.5%
payable semi-annually, due 2002............... 280 206,400
Revolving Credit Facility (Revolver) with
interest at prime plus 0.5% (9.00% at
July 31, 1997) payable monthly................ - -
Other.......................................... 2,955 5,106
------- -------
303,235 211,506
Less current portion of long-term debt......... 1,592 2,448
------- -------
$ 301,643 $ 209,058
======= =======
</TABLE>
On November 27, 1996, WCI Steel Holdings, Inc., a wholly-owned subsidiary
of Renco, completed a tender offer in which it purchased substantially all
the outstanding shares of Common Stock of the Company not held by Renco
(Equity Tender Offer). Following the completion of the Equity Tender Offer,
WCI Steel Holdings, Inc. was merged with and into the Company with the
Company surviving as a wholly-owned subsidiary of Renco. The total
consideration paid for the Common Stock tendered and the Common Stock
reacquired as a result of the merger of WCI Steel Holdings, Inc. with and
into the Company was approximately $56,936,000, including related expenses.
On the same date, the Company completed the sale of $300,000,000 10% senior
secured notes (Senior Secured Notes) due 2004. The proceeds from the Senior
Secured Notes, with existing cash balances of the Company, were used to
complete the Equity Tender Offer, a tender offer in which the Company
acquired $206,120,000 of the $206,400,000 aggregate principal amount of the
then outstanding 10.5% Senior Notes at a rate of $1,125 per $1,000 principal
amount outstanding plus accrued interest, pay a $108,000,000 dividend to
Renco, make contractual compensation payments to certain executives of the
Company and pay related transaction costs. The debt transactions, Equity
Tender Offer, dividend payment and compensation payments are collectively
referred to as the "Transactions". As a result of the Transactions, the
Company recognized an extraordinary loss of $19,606,000, net of income tax
benefits of $13,180,000, and compensation expenses of approximately
$8,577,000 in the first quarter of fiscal 1997.
The Senior Secured Notes are secured by a second priority lien on
substantially all of the existing property, plant and equipment of the
Company which will become a first priority lien if all of the 10.5% Senior
Notes are extinguished. A Voluntary Employee Beneficiaries Association trust
fund, established to hold Company contributions to fund postretirement health
care and life insurance obligations for the benefit of hourly employees, also
<PAGE> 8
holds a second priority lien on the security for the Senior Secured Notes,
which lien will remain a second priority lien even if the lien in favor of
the Senior Secured Notes becomes a first priority lien.
The Company's Revolver and Senior Secured Notes contain certain financial
and other covenants, including maintenance of specified levels of net worth
as defined, working capital, and debt service and limitations on capital
expenditures. Additional covenants limit the incurrence of additional
indebtedness, payments affecting subsidiaries, transactions with affiliates,
sale/leaseback transactions, impairment of security interest, consolidations,
mergers and transfer of the Company's assets. The Company is permitted to
declare and pay dividends, and make other transactions with affiliates
provided no condition of default exists or will exist as a result of the
transactions or dividends, and the accumulated amount of such transactions is
no greater than fifty percent (50%) of the consolidated net income as defined
(less 100% of any consolidated net loss) earned for periods subsequent to
October 31, 1996 when taken as a single accounting period. Under these
agreements $1,387,000 was available for dividends and other transactions with
affiliates at July 31, 1997.
NOTE 4 : ENVIRONMENTAL MATTERS and OTHER CONTINGENCIES
In common with much of the steel industry, WCI's facilities are located on
sites that have been used for heavy industrial purposes for decades.
Accordingly, WCI is and will continue to be subject to numerous federal,
state and local environmental laws and regulations governing, among other
things, air emissions, waste water discharge and solid and hazardous waste
disposal. WCI has made and intends to continue to make the necessary
expenditures for environmental remediation and compliance with environmental
laws and regulations. Environmental laws and regulations have changed
rapidly in recent years, and WCI may be subject to more stringent
environmental laws and regulations in the future. Compliance with more
stringent environmental laws and regulations could have a material adverse
effect on WCI's financial condition and results of operations.
On June 29, 1995, the Department of Justice, on behalf of the Environmental
Protection Agency (EPA), instituted a civil action against WCI under the
Clean Water Act in the United States District Court for the Northern District
of Ohio. The action alleges numerous violations of the Company's National
Pollution Discharge Elimination System permit alleged to have occurred during
the years 1989 through 1996, inclusive. On March 29, 1996, the Department of
Justice on behalf of the EPA, instituted another civil action against the
Company in the same court under the Clean Air Act alleging violations by the
Company of the work practice, inspection and notice requirements for
demolition and renovation of the National Emission Standard for Hazardous Air
Pollutants for Asbestos and also violations of the particulate standard and
the opacity limits applicable to the Company's facilities in Warren, Ohio.
Each action seeks a civil penalty not to exceed the statutory maximum of
$25,000 per day per violation and also seeks an injunction against continuing
violations. The Company believes that imposition of the statutory maximum
penalty for the alleged violations is unlikely based upon past judicial
penalties imposed under the Clean Water Act and the Clean Air Act, and that
it has defenses to liability. By letter dated November 1, 1996, EPA's Region
V Water Division Director requested information pursuant to the Clean Water
Act from the Company relating to the Warren facility, including information
as to the effect of a prohibition against federal procurement of the
Company's products on the Company's business. The Company has not been
notified that the EPA will seek a federal procurement prohibition based on
<PAGE> 9
alleged permit violations. However, there can be no assurance that a federal
procurement prohibition will not be imposed. The Company is negotiating with
the EPA toward a settlement of these matters. If the Company is unable to
reach a negotiated settlement, and if a substantial penalty similar to the
statutory maximum penalty or federal procurement prohibition were imposed, it
could have a material adverse effect on the operating results or financial
condition of the Company, the extent of which the Company is unable to
estimate at this time. These actions are in discovery and trial dates have
not been established.
The Company has obtained a Resource Conservation and Recovery Act (RCRA)
storage permit for waste pickle liquor at its Warren facility acid
regeneration plant. As a provision of the permit, the Company will be
required to undertake a corrective action program with respect to historical
material handling practices at the Warren facility. In April 1997 the
Company received notice from the EPA that it had approved a workplan for the
first investigation step of the corrective action program, the RCRA Facility
Investigation (RFI), which is expected to be completed in 1999. The workplan
identifies thirteen historical solid waste management units which are the
subject of the RFI. The final scope of the corrective action required to
remediate or reclaim any contamination that may be present at or emanating
from the Warren facility is dependent upon the completion and findings of the
RFI and the development and approval of a corrective action program.
Accordingly, the Company is unable at this time to estimate the final cost of
the corrective action program or the period over which such costs may be
incurred and there can be no assurance that it would not have a material
adverse effect on the operating results or financial condition of the
Company.
On January 23, 1996, two retired employees instituted an action against the
Company and the United Steelworkers of America in the United States District
Court for the Northern District of Ohio alleging in substance that certain
distributions made by the Company to employees and benefit plans violated
certain agreements, the Employee Retirement Income Security Act, the National
Labor Relations Act and common law. On July 31, 1997, the court granted the
Company's motion to dismiss this action and entered judgement in favor of the
Company and the United Steelworkers of America. The plaintiffs have filed a
notice of appeal regarding the court's decision to dismiss.
On April 5, 1996, an employee instituted an action for damages against the
Company in the Court of Common Pleas, Trumbull County, Ohio alleging that,
under Ohio common law, her privacy rights were violated and that she has been
subjected to sexual harassment. On April 28, 1997 the plaintiff filed for
summary judgement. The Company denies plaintiff's allegations of liability
and has opposed the plaintiff's motion for summary judgement on which the
court has yet to rule. The court has allowed until September 2, 1997 for
discovery and set a trial date in February 1998.
A liability has been established for an amount, which the Company believes is
adequate, based on information currently available, to cover the costs to
resolve the above described matters, including remediation, if any, except
for any costs of corrective action that may result from the RFI for which no
estimate can currently be made. The outcome of the above described matters
could have a material adverse effect on the future operating results of the
Company in a particular quarterly or annual period, however, the Company
believes that the effect of such matters will not have a material adverse
<PAGE> 10
effect on the Company's consolidated financial position. In addition to the
above matters, the Company is contingently liable with respect to lawsuits
and other claims incidental to the ordinary course of its operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended July 31, 1997 Compared to
Three Months Ended July 31, 1996
Net sales for the three months ended July 31, 1997 were $165.9 million on
323,564 tons shipped, representing an 5.0% decrease in net sales and a 11.1%
decrease in tons shipped compared to the three months ended July 31, 1996.
During the 1997 quarter the Company substantially completed the upgrade of
the hot strip mill which required several equipment outages and resulted in
lower shipping volume during the quarter. Net sales per ton shipped
increased 6.9% to $513 compared to $480 for the 1996 quarter. This increase
is primarily the result of changes in product mix with shipments of custom
carbon, alloy and electrical steels accounting for 70.7% in 1997 and 63.8% in
1996, and to a lesser extent, increases in product selling prices. The
improved custom product mix in 1997 reflects strong demand for the Company's
custom products in the last six months and a prolonged work stoppage of a
competitor which was recently settled.
Gross margin (net sales less cost of goods sold) was $31.6 million, or 19.0%,
for the three months ended July 31, 1997 compared to $29.4 million, or 16.8%,
for the three months ended July 31, 1996. The increase in gross margin
reflects improvement in the custom product mix and increases in selling
prices offset somewhat by lower volume in 1997.
Operating income was $20.9 million, $65 per ton, for the three months ended
July 31, 1997 compared to $18.0 million, $50 per ton, for the three month
period ended July 31, 1996. The improved operating results for 1997 reflect
the higher gross margin discussed above and lower selling, general and
administrative expenses in the 1997 period primarily as a result of lower
legal costs.
Interest expense increased to $8.1 million in the 1997 quarter compared to
$6.2 million in 1996 as a result of the issuance of $300 million 10% Senior
Secured Notes and the retirement of $206.1 million principal amount of 10.5%
Senior Notes on November 27, 1996. Interest income decreased to $0.2 million
in 1997 compared to $1.8 million in 1996 as a result of lower cash, cash
equivalent and short-term investments in the 1997 period due to the
Transactions.
As a result of the items discussed above, income before extraordinary items
was $8.2 million in the 1997 quarter compared to $8.1 million in 1996.
Nine Months Ended July 31, 1997 Compared to
Nine Months Ended July 31, 1996
Net sales for the nine months ended July 31, 1997 were $499.5 million on
987,911 tons shipped, representing a 1.9% increase in net sales and a 6.3%
decrease in tons shipped compared to the nine months ended July 31, 1996.
Shipping volume was lower in the 1997 period due to the above mentioned
upgrade of the Company's hot strip mill and consequent equipment downtime.
<PAGE> 11
Net sales per ton shipped increased 8.8% to $506 compared to $465 for the
1996 period. This increase is primarily the result of changes in product mix
with shipments of custom carbon, alloy and electrical steels accounting for
68.9% in 1997 and 55.4% in 1996 and to a lesser extent, increases in product
selling prices. In addition, shipments in 1996 included 45,904 tons of lower
value added semi-finished steel.
Gross margin (net sales less cost of goods sold) was $92.2 million, or 18.5%,
for the nine months ended July 31, 1997 compared to $78.7 million, or 16.1%,
for the nine months ended July 31, 1996. The increase in gross margin
reflects improvement in the custom product mix and increases in selling
prices offset somewhat by lower volume in 1997.
Operating income was $51.1 million for the nine months ended July 31, 1997
compared to $45.8 million for the nine month period ended July 31, 1996. The
operating results for 1997 reflect the increase in gross margin discussed
above offset by $8.6 million of compensation expenses related to the
Transactions. Excluding the expenses incurred as a result of the
Transactions, operating income was $59.7 million during 1997 or $60 per ton
shipped compared to $43 per ton shipped in the 1996 period. Operating income
in the 1996 period was adversely affected by the labor contract dispute in
the fourth quarter of 1995.
Interest expense increased to $23.6 million in 1997 compared to $18.7 million
in 1996 as a result of the issuance of $300 million 10% Senior Secured Notes
and the retirement of $206.1 million principal amount of 10.5% Senior Notes
on November 27, 1996. Interest income decreased to $1.0 million in 1997
compared to $4.5 million in 1996 as a result of lower cash, cash equivalent
and short-term investments in the 1997 period due to the Transactions.
As a result of the items discussed above, income before extraordinary items
was $17.6 million in 1997 compared to $19.1 million in 1996. During the nine
months ended July 31, 1997, the Company recognized an extraordinary loss of
$19.6 million, net of income taxes, on the early retirement of $206.1 million
principal amount of Senior Notes. As a result, the Company had a net loss of
$2.0 million for the nine months ended July 31, 1997.
Liquidity and Capital Resources
WCI's liquidity requirements result from capital investments, working capital
requirements, postretirement healthcare and pension funding, interest expense
and, to a lesser extent, principal payments on its indebtedness. The
Company's primary sources of liquidity as of July 31, 1997 consisted of $15.0
million of cash and cash equivalents and available borrowing under the WCI
Revolving Credit Facility.
The WCI Revolving Credit Facility has a maximum borrowing limit of $100
million, is secured by eligible inventories and receivables, as defined
therein, and expires on December 29, 1999. As of July 31, 1997, WCI had no
borrowings outstanding under the WCI Revolving Credit Facility, with a
borrowing limit of $100 million less any outstanding letters of credit ($5.5
million as of July 31, 1997).
Cash provided by operating activities was $28.9 million for the nine months
ended July 31, 1997 compared to $77.3 million for the 1996 period. The
decrease in operating cash flow in 1997 compared to 1996 resulted primarily
<PAGE> 12
from the working capital benefit experienced in 1996 following the resolution
of a work stoppage in late 1995 and significantly higher in-process steel
inventory in 1997 as a result, in part, of the hot strip mill upgrade.
Installation of the equipment for the hot strip mill upgrade was substantially
completed during the third fiscal quarter. The Company is currently
implementing and adjusting the equipment installed during the upgrade and, as
a result, production delays have been, and may continue to be, experienced in
the near term. Shipments in the third quarter were lower than previous
quarters due to the hot strip mill upgrade. Management expects shipments to
return to more normal levels during the fourth quarter as equipment
implementation proceeds.
Capital expenditures were $33.5 million and $20.4 million for the nine months
ended July 31, 1997 and 1996, respectively, and are estimated to be $40 million
to $45 million for all of fiscal 1997, including expenditures for the upgrade
of the Company's hot strip mill. Management has funded the capital
expenditures in 1997 and 1996 through cash balances and cash provided by
operating activities. At July 31, 1997, the Company had commitments for
capital expenditures of approximately $11.2 million.
As discussed in Note 3 to the Condensed Consolidated Financial Statements,
during the first quarter of 1997 the Company completed the sale of $300
million 10% Senior Secured Notes due 2004. The proceeds from the Senior
Secured Notes, with existing cash balances of the Company, were used to
complete the Equity Tender Offer for $56.9 million, including expenses,
complete a tender offer in which the Company acquired $206.1 million of the
$206.4 million aggregate principal amount of the then outstanding 10.5%
Senior Notes at a rate of $1,125 per $1,000 principal amount outstanding plus
accrued interest, pay a $108 million dividend to Renco, make contractual
compensation payments to certain executives of the Company and pay related
transaction costs. As a result of these transactions, the Company's
liquidity was significantly reduced and its debt service requirements
significantly increased. The Company has the right to defease the remaining
$280,000 principal amount of Senior Notes by depositing with the trustee
money and/or U.S. government obligations sufficient to make payments with
respect to the Senior Notes. Management anticipates that cash flow from
operations and availability under the WCI Revolving Credit Facility will be
sufficient to finance the Company's liquidity needs for the foreseeable
future.
The WCI Revolving Credit Facility and Senior Secured Notes contain numerous
covenants and prohibitions that limit the financial activities of the
Company, including requirements that the Company satisfy certain financial
ratios and limitations on the incurrence of additional indebtedness. The
ability of the Company to meet its debt service requirements and to comply
with such covenants will be dependent upon future operating performance and
financial results of the Company, which will be subject to financial,
economic, political, competitive and other factors affecting the Company,
many of which are beyond its control.
The Company declared and paid a dividend of $6 million during the third
quarter of 1997.
<PAGE> 13
Forward-Looking Statements
This report includes forward-looking statements which involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and
other important factors include, among others: general economic and business
conditions; increasing industry capacity, including effects of a recent
settlement of a long labor dispute by a major producer; industry trends;
competition; currency fluctuations; the loss of any significant customers;
availability of qualified personnel; and major equipment failures.
<PAGE> 14
PART II - OTHER INFORMATION
WCI STEEL, INC.
ITEM 1. LEGAL PROCEEDINGS
Thomas C. Williams, etc. v. WCI Steel, Inc.
Reference in made to the description of this action contained in
the Company's annual report on Form 10-K for the year ended
October 31, 1996.
On July 31, 1997, the court granted the Company's motion to
dismiss and entered judgement in favor of the Company and the
United Steelworkers of America. The plaintiffs have filed a notice
of appeal regarding the court's decision to dismiss.
ITEM 6. EXHIBITS and REPORTS ON FORM 8-K
(a) Exhibits:
A list of the exhibits required to be filed as part of this
Report on Form 10-Q is set forth in the "Exhibit Index" which
immediately precedes such exhibits, and is incorporated herein
by reference.
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the quarter ended
July 31, 1997.
<PAGE> 15
WCI STEEL, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WCI STEEL, INC.
(registrant)
Date: August 18, 1997 /S/ BRET W. WISE
-----------------------------
Bret W. Wise
Vice President and
Chief Financial Officer
(principal accounting officer)
<PAGE> 16
WCI STEEL, INC.
EXHIBIT INDEX
Exhibit Number Description
27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AT July 31, 1997 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTH PERIOD ENDED
July 31, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 14,977
<SECURITIES> 0
<RECEIVABLES> 62,405
<ALLOWANCES> 1,600
<INVENTORY> 101,839
<CURRENT-ASSETS> 188,410
<PP&E> 342,646
<DEPRECIATION> 118,735
<TOTAL-ASSETS> 458,289
<CURRENT-LIABILITIES> 111,498
<BONDS> 301,643
0
0
<COMMON> 0
<OTHER-SE> (96,691)
<TOTAL-LIABILITY-AND-EQUITY> 458,289
<SALES> 499,458
<TOTAL-REVENUES> 499,458
<CGS> 407,258
<TOTAL-COSTS> 407,258
<OTHER-EXPENSES> 41,088
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,648
<INCOME-PRETAX> 28,553
<INCOME-TAX> 10,913
<INCOME-CONTINUING> (1,966)
<DISCONTINUED> 0
<EXTRAORDINARY> (19,606)
<CHANGES> 0
<NET-INCOME> (1,966)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
